PRINTER'S NO. 376
No. 372 Session of 1979
INTRODUCED BY ZEMPRELLI, O'PAKE, SCANLON, FUMO, MESSINGER,
SCHAEFER, ANDREWS AND KUSSE, MARCH 5, 1979
REFERRED TO BUSINESS AND COMMERCE, MARCH 5, 1979
AN ACT
1 Amending Title 13 (Commercial Code) of the Pennsylvania
2 Consolidated Statutes, by transferring the text of the
3 Uniform Commercial Code to the Consolidated Statutes without
4 change in substance and making conforming amendments to
5 citations in other titles.
6 TABLE OF CONTENTS
7 TITLE 13
8 COMMERCIAL CODE
9 DIVISION 1. GENERAL PROVISIONS
10 Chapter 11. Short Title, Construction, Application and Subject
11 Matter of Title
12 § 1101. Short title of title.
13 § 1102. Purposes; rules of construction; variation by
14 agreement.
15 § 1103. Supplementary general principles of law applicable.
16 § 1104. Construction against implicit repeal.
17 § 1105. Territorial application of title; power of parties to
18 choose applicable law.
19 § 1106. Remedies to be liberally administered.
1 § 1107. Waiver or renunciation of claim or right after breach.
2 § 1108. (Reserved).
3 § 1109. Section and subsection captions.
4 Chapter 12. General Definitions and Principles of
5 Interpretation
6 § 1201. General definitions.
7 § 1202. Prima facie evidence by third party documents.
8 § 1203. Obligation of good faith.
9 § 1204. Time; reasonable time; "seasonably."
10 § 1205. Course of dealing and usage of trade.
11 § 1206. Statute of frauds for kinds of personal property not
12 otherwise covered.
13 § 1207. Performance or acceptance under reservation of rights.
14 § 1208. Option to accelerate at will.
15 DIVISION 2. SALES
16 Chapter 21. Short Title, General Construction and Subject
17 Matter
18 § 2101. Short title of division.
19 § 2102. Scope; certain security and other transactions excluded
20 from division.
21 § 2103. Definitions and index of definitions.
22 § 2104. Definitions: "merchant"; "between merchants";
23 "financing agency."
24 § 2105. Definitions: transferability; "goods"; "future" goods;
25 "lot"; "commercial unit."
26 § 2106. Definitions: "contract"; "agreement"; "contract for
27 sale"; "sale"; "present sale"; "conforming" to
28 contract; "termination"; "cancellation."
29 § 2107. Goods to be severed from realty: recording.
30 Chapter 22. Form, Formation and Readjustment of Contract
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1 § 2201. Formal requirements; statute of frauds.
2 § 2202. Final written expression: parol or extrinsic evidence.
3 § 2203. Seals inoperative.
4 § 2204. Formation in general.
5 § 2205. Firm offers.
6 § 2206. Offer and acceptance in formation of contract.
7 § 2207. Additional terms in acceptance or confirmation.
8 § 2208. Course of performance or practical construction.
9 § 2209. Modification, rescission and waiver.
10 § 2210. Delegation of performance; assignment of rights.
11 Chapter 23. General Obligation and Construction of Contract
12 § 2301. General obligations of parties.
13 § 2302. Unconscionable contract or clause.
14 § 2303. Allocation or division of risks.
15 § 2304. Price payable in money, goods, realty or otherwise.
16 § 2305. Open price term.
17 § 2306. Output, requirements and exclusive dealings.
18 § 2307. Delivery in single lot or several lots.
19 § 2308. Absence of specified place for delivery.
20 § 2309. Absence of specific time provisions; notice of
21 termination.
22 § 2310. Open time for payment or running of credit; authority
23 to ship under reservation.
24 § 2311. Options and cooperation respecting performance.
25 § 2312. Warranty of title and against infringement; obligation
26 of buyer against infringement.
27 § 2313. Express warranties by affirmation, promise, description
28 or sample.
29 § 2314. Implied warranty: merchantability; usage of trade.
30 § 2315. Implied warranty: fitness for particular purpose.
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1 § 2316. Exclusion or modification of warranties.
2 § 2317. Cumulation and conflict of warranties express or
3 implied.
4 § 2318. Third party beneficiaries of warranties express or
5 implied.
6 § 2319. F.O.B. and F.A.S. terms.
7 § 2320. C.I.F. and C. & F. terms.
8 § 2321. C.I.F. or C. & F.: "net landed weights"; "payment on
9 arrival"; warranty of condition on arrival.
10 § 2322. Delivery "ex-ship."
11 § 2323. Form of bill of lading required in overseas shipment;
12 "overseas."
13 § 2324. "No arrival, no sale" term.
14 § 2325. "Letter of credit" term; "confirmed credit."
15 § 2326. Sale on approval and sale or return; consignment sales
16 and rights of creditors.
17 § 2327. Special incidents of sale on approval and sale or
18 return.
19 § 2328. Sale by auction.
20 Chapter 24. Title, Creditors and Good Faith Purchasers
21 § 2401. Passing of title; reservation for security; limited
22 application of section.
23 § 2402. Rights of creditors of seller against sold goods.
24 § 2403. Power to transfer; good faith purchase of goods;
25 "entrusting."
26 Chapter 25. Performance
27 § 2501. Insurable interest in goods; manner of identification
28 of goods.
29 § 2502. Right of buyer to goods on insolvency of seller.
30 § 2503. Manner of tender of delivery by seller.
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1 § 2504. Shipment by seller.
2 § 2505. Shipment by seller under reservation.
3 § 2506. Rights of financing agency.
4 § 2507. Effect of tender by seller; delivery on condition.
5 § 2508. Cure by seller of improper tender or delivery;
6 replacement.
7 § 2509. Risk of loss in absence of breach.
8 § 2510. Effect of breach on risk of loss.
9 § 2511. Tender of payment by buyer; payment by check.
10 § 2512. Payment by buyer before inspection.
11 § 2513. Right of buyer to inspection of goods.
12 § 2514. When documents deliverable on acceptance; when on
13 payment.
14 § 2515. Preserving evidence of goods in dispute.
15 Chapter 26. Breach, Repudiation and Excuse
16 § 2601. Rights of buyer on improper delivery.
17 § 2602. Manner and effect of rightful rejection.
18 § 2603. Duties of merchant buyer as to rightfully rejected
19 goods.
20 § 2604. Options of buyer as to salvage of rightfully rejected
21 goods.
22 § 2605. Waiver of objections of buyer by failure to
23 particularize.
24 § 2606. What constitutes acceptance of goods.
25 § 2607. Effect of acceptance; notice of breach; burden of
26 establishing breach after acceptance; notice of claim
27 or litigation to person answerable over.
28 § 2608. Revocation of acceptance in whole or in part.
29 § 2609. Right to adequate assurance of performance.
30 § 2610. Anticipatory repudiation.
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1 § 2611. Retraction of anticipatory repudiation.
2 § 2612. "Installment contract"; breach.
3 § 2613. Casualty to identified goods.
4 § 2614. Substituted performance.
5 § 2615. Excuse by failure of presupposed conditions.
6 § 2616. Procedure on notice claiming excuse.
7 Chapter 27. Remedies
8 § 2701. Remedies for breach of collateral contracts not
9 impaired.
10 § 2702. Remedies of seller on discovery of insolvency of buyer.
11 § 2703. Remedies of seller in general.
12 § 2704. Right of seller to identify goods to contract
13 notwithstanding breach or to salvage unfinished goods.
14 § 2705. Stoppage by seller of delivery in transit or otherwise.
15 § 2706. Resale by seller including contract for resale.
16 § 2707. "Person in the position of a seller."
17 § 2708. Damages of seller for nonacceptance or repudiation.
18 § 2709. Action for the price.
19 § 2710. Incidental damages of seller.
20 § 2711. Remedies of buyer in general; security interest of
21 buyer in rejected goods.
22 § 2712. "Cover"; procurement by buyer of substitute goods.
23 § 2713. Damages of buyer for nondelivery or repudiation.
24 § 2714. Damages of buyer for breach in regard to accepted
25 goods.
26 § 2715. Incidental and consequential damages of buyer.
27 § 2716. Right of buyer to specific performance or replevin.
28 § 2717. Deduction of damages from price.
29 § 2718. Liquidation or limitation of damages; deposits.
30 § 2719. Contractual modification or limitation of remedy.
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1 § 2720. Effect of "cancellation" or "rescission" on claims for
2 antecedent breach.
3 § 2721. Remedies for fraud.
4 § 2722. Who can sue third parties for injury to goods.
5 § 2723. Proof of market price: time and place.
6 § 2724. Admissibility of market quotations.
7 § 2725. Statute of limitations in contracts for sale.
8 DIVISION 3. COMMERCIAL PAPER
9 Chapter 31. Short Title, Form and Interpretation
10 § 3101. Short title of division.
11 § 3102. Definitions and index of definitions.
12 § 3103. Limitations on scope of division.
13 § 3104. Form of negotiable instruments; "draft"; "check";
14 "certificate of deposit"; "note."
15 § 3105. When promise or order unconditional.
16 § 3106. Sum certain.
17 § 3107. Money.
18 § 3108. Payable on demand.
19 § 3109. Definite time.
20 § 3110. Payable to order.
21 § 3111. Payable to bearer.
22 § 3112. Terms and omissions not affecting negotiability.
23 § 3113. Seal.
24 § 3114. Date, antedating, postdating.
25 § 3115. Incomplete instruments.
26 § 3116. Instruments payable to two or more persons.
27 § 3117. Instruments payable with words of description.
28 § 3118. Ambiguous terms and rules of construction.
29 § 3119. Other writings affecting instrument.
30 § 3120. Instruments "payable through" bank.
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1 § 3121. Instruments payable at bank.
2 § 3122. Accrual of cause of action.
3 Chapter 32. Transfer and Negotiation
4 § 3201. Transfer: right to indorsement.
5 § 3202. Negotiation.
6 § 3203. Wrong or misspelled name.
7 § 3204. Special indorsement; blank indorsement.
8 § 3205. Restrictive indorsements.
9 § 3206. Effect of restrictive indorsement.
10 § 3207. Negotiation effective although it may be rescinded.
11 § 3208. Reacquisition.
12 Chapter 33. Rights of a Holder
13 § 3301. Rights of a holder.
14 § 3302. Holder in due course.
15 § 3303. Taking for value.
16 § 3304. Notice to purchaser.
17 § 3305. Rights of holder in due course.
18 § 3306. Rights of one not holder in due course.
19 § 3307. Burden of establishing signatures, defenses and due
20 course.
21 Chapter 34. Liability of Parties
22 § 3401. Signature.
23 § 3402. Signature in ambiguous capacity.
24 § 3403. Signature by authorized representative.
25 § 3404. Unauthorized signatures.
26 § 3405. Impostors; signature in name of payee.
27 § 3406. Negligence contributing to alteration or unauthorized
28 signature.
29 § 3407. Alteration.
30 § 3408. Consideration.
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1 § 3409. Draft not an assignment.
2 § 3410. Definition and operation of acceptance.
3 § 3411. Certification of a check.
4 § 3412. Acceptance varying draft.
5 § 3413. Contract of maker, drawer and acceptor.
6 § 3414. Contract of indorser; order of liability.
7 § 3415. Contract of accommodation party.
8 § 3416. Contract of guarantor.
9 § 3417. Warranties on presentment and transfer.
10 § 3418. Finality of payment or acceptance.
11 § 3419. Conversion of instrument; innocent representative.
12 Chapter 35. Presentment, Notice of Dishonor and Protest
13 § 3501. When presentment, notice of dishonor, and protest
14 necessary or permissible.
15 § 3502. Unexcused delay; discharge.
16 § 3503. Time of presentment.
17 § 3504. How presentment made.
18 § 3505. Rights of party to whom presentment is made.
19 § 3506. Time allowed for acceptance or payment.
20 § 3507. Dishonor; right of recourse of holder; term allowing
21 re-presentment.
22 § 3508. Notice of dishonor.
23 § 3509. Protest; noting for protest.
24 § 3510. Evidence of dishonor and notice of dishonor.
25 # 3511. Waived or excused presentment, protest or notice of
26 dishonor or delay therein.
27 Chapter 36. Discharge
28 § 3601. Discharge of parties.
29 § 3602. Effect of discharge against holder in due course.
30 § 3603. Payment or satisfaction.
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1 § 3604. Tender of payment.
2 § 3605. Cancellation and renunciation.
3 § 3606. Impairment of recourse or of collateral.
4 Chapter 37. Advice of International Sight Draft
5 § 3701. Letter of advice of international sight draft.
6 Chapter 38. Miscellaneous
7 § 3801. Drafts in a set.
8 § 3802. Effect of instrument on obligation for which it is
9 given.
10 § 3803. Notice to third party.
11 § 3804. Lost, destroyed or stolen instruments.
12 § 3805. Instruments not payable to order or to bearer.
13 DIVISION 4. BANK DEPOSITS AND COLLECTIONS
14 Chapter 41. General Provisions and Definitions
15 § 4101. Short title of division.
16 § 4102. Applicability.
17 § 4103. Variation by agreement; measure of damages; certain
18 action constituting ordinary care.
19 § 4104. Definitions and index of definitions.
20 § 4105. "Depositary bank"; "intermediary bank"; "collecting
21 bank"; "payor bank"; "presenting bank"; "remitting
22 bank."
23 § 4106. Separate office of a bank.
24 § 4107. Time of receipt of items.
25 § 4108. Delays.
26 § 4109. Process of posting.
27 Chapter 42. Collection of Items: Depositary and Collecting
28 Banks
29 § 4201. Presumption and duration of agency status of collecting
30 banks and provisional status of credits; applicability
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1 of division; item indorsed "pay any bank."
2 § 4202. Responsibility for collection; when action seasonable.
3 § 4203. Effect of instructions.
4 § 4204. Methods of sending and presenting; sending direct to
5 payor bank.
6 § 4205. Supplying missing indorsement; no notice from prior
7 indorsement.
8 § 4206. Transfer between banks.
9 § 4207. Warranties of customer and collecting bank on transfer
10 or presentment of items; time for claims.
11 § 4208. Security interest of collecting bank in items,
12 accompanying documents and proceeds.
13 § 4209. When bank gives value for purposes of holder in due
14 course.
15 § 4210. Presentment by notice of item not payable by, through
16 or at a bank; liability of secondary parties.
17 § 4211. Media of remittance; provisional and final settlement
18 in remittance cases.
19 § 4212. Right of charge-back or refund.
20 § 4213. Final payment of item by payor bank; when provisional
21 debits and credits become final; when certain credits
22 become available for withdrawal.
23 § 4214. Insolvency and preference.
24 Chapter 43. Collection of Items: Payor Banks
25 § 4301. Deferred posting; recovery of payment by return of
26 items; time of dishonor.
27 § 4302. Responsibility of payor bank for late return of item.
28 § 4303. When items subject to notice, stop-order, legal process
29 or set-off; order in which items may be charged or
30 certified.
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1 Chapter 44. Relationship Between Payor Bank and Its Customer
2 § 4401. When bank may charge account of customer.
3 § 4402. Liability of bank to customer for wrongful dishonor.
4 § 4403. Right of customer to stop payment; burden of proof of
5 loss.
6 § 4404. Bank not obligated to pay check more than six months
7 old.
8 § 4405. Death or incompetence of customer.
9 § 4406. Duty of customer to discover and report unauthorized
10 signature or alteration.
11 § 4407. Right of payor bank to subrogation on improper payment.
12 Chapter 45. Collection of Documentary Drafts
13 § 4501. Handling of documentary drafts; duty to send for
14 presentment and to notify customer of dishonor.
15 § 4502. Presentment of "on arrival" drafts.
16 § 4503. Responsibility of presenting bank for documents and
17 goods; report of reasons for dishonor; referee in case
18 of need.
19 § 4504. Privilege of presenting bank to deal with goods;
20 security interest for expenses.
21 DIVISION 5. LETTERS OF CREDIT
22 Chapter 51. Letters of Credit
23 § 5101. Short title of division.
24 § 5102. Scope of division.
25 § 5103. Definitions and index of definitions.
26 § 5104. Formal requirements; signing.
27 § 5105. Consideration.
28 § 5106. Time and effect of establishment of credit.
29 § 5107. Advice of credit; confirmation; error in statement of
30 terms.
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1 § 5108. "Notation credit"; exhaustion of credit.
2 § 5109. Obligation of issuer to its customer.
3 § 5110. Availability of credit in portions; reservation by
4 presenter of lien or claim.
5 § 5111. Warranties on transfer and presentment.
6 § 5112. Time allowed for honor or rejection; withholding honor
7 or rejection by consent; "presenter."
8 § 5113. Indemnities.
9 § 5114. Duty and privilege of issuer to honor; right to
10 reimbursement.
11 § 5115. Remedy for improper dishonor or anticipatory
12 repudiation.
13 § 5116. Transfer and assignment.
14 § 5117. Insolvency of bank holding funds for documentary
15 credit.
16 DIVISION 6. BULK TRANSFERS
17 Chapter 61. Bulk Transfers
18 § 6101. Short title of division.
19 § 6102. "Bulk transfer"; transfers of equipment; enterprises
20 and bulk transfers subject to division.
21 § 6103. Transfers excepted from division.
22 § 6104. Schedule of property; list of creditors.
23 § 6105. Notice to creditors.
24 § 6106. Application of proceeds.
25 § 6107. The notice.
26 § 6108. Auction sales; "auctioneer."
27 § 6109. What creditors protected.
28 § 6110. Subsequent transfers.
29 § 6111. Limitation of actions and levies.
30 DIVISION 7. WAREHOUSE RECEIPTS, BILLS OF
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1 LADING AND OTHER DOCUMENTS OF TITLE
2 Chapter 71. General
3 § 7101. Short title of division.
4 § 7102. Definitions and index of definitions.
5 § 7103. Relation of division to treaty, statute, tariff,
6 classification or regulation.
7 § 7104. Negotiable and nonnegotiable warehouse receipt, bill of
8 lading or other document of title.
9 § 7105. Construction against negative implication.
10 Chapter 72. Warehouse Receipts: Special Provisions
11 § 7201. Who may issue warehouse receipt; storage under
12 government bond.
13 § 7202. Form of warehouse receipt; essential terms; optional
14 terms.
15 § 7203. Liability for nonreceipt or misdescription.
16 § 7204. Duty of care; contractual limitation of liability of
17 warehouseman.
18 § 7205. Title under warehouse receipt defeated in certain
19 cases.
20 § 7206. Termination of storage at option of warehouseman.
21 § 7207. Goods must be kept separate; fungible goods.
22 § 7208. Altered warehouse receipts.
23 § 7209. Lien of warehouseman.
24 § 7210. Enforcement of lien of warehouseman.
25 Chapter 73. Bills of Lading: Special Provisions
26 § 7301. Liability for nonreceipt or misdescription; "said to
27 contain"; "shipper's load and count"; improper
28 handling.
29 § 7302. Through bills of lading and similar documents.
30 § 7303. Diversion; reconsignment; change of instructions.
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1 § 7304. Bills of lading in a set.
2 § 7305. Destination bills.
3 § 7306. Altered bills of lading.
4 § 7307. Lien of carrier.
5 § 7308. Enforcement of lien of carrier.
6 § 7309. Duty of care; contractual limitation of liability of
7 carrier.
8 Chapter 74. Warehouse Receipts and Bills of Lading: General
9 Obligations
10 § 7401. Irregularities in issue of receipt or bill or conduct
11 of issuer.
12 § 7402. Duplicate receipt or bill; overissue.
13 § 7403. Obligation of warehouseman or carrier to deliver;
14 excuse.
15 § 7404. No liability for good faith delivery pursuant to
16 receipt or bill.
17 Chapter 75. Warehouse Receipts and Bills of Lading:
18 Negotiation and Transfer
19 § 7501. Form of negotiation and requirements of "due
20 negotiation."
21 § 7502. Rights acquired by due negotiation.
22 § 7503. Document of title to goods defeated in certain cases.
23 § 7504. Rights acquired in absence of due negotiation; effect
24 of diversion; stoppage by seller of delivery.
25 § 7505. Indorser not guarantor for other parties.
26 § 7506. Delivery without indorsement: right to compel
27 indorsement.
28 § 7507. Warranties on negotiation or transfer of receipt or
29 bill.
30 § 7508. Warranties of collecting bank as to documents.
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1 § 7509. Receipt or bill: when adequate compliance with
2 commercial contract.
3 Chapter 76. Warehouse Receipts and Bills of Lading:
4 Miscellaneous Provisions
5 § 7601. Lost and missing documents.
6 § 7602. Attachment of goods covered by negotiable document.
7 § 7603. Conflicting claims; interpleader.
8 DIVISION 8. INVESTMENT SECURITIES
9 Chapter 81. Short Title and General Matters
10 § 8101. Short title of division.
11 § 8102. Definitions and index of definitions.
12 § 8103. Lien of issuer.
13 § 8104. Effect of overissue; "overissue."
14 § 8105. Securities negotiable; presumptions.
15 § 8106. Applicability.
16 § 8107. Securities deliverable; action for price.
17 Chapter 82. Issue - Issuer
18 § 8201. "Issuer."
19 § 8202. Responsibility and defenses of issuer; notice of defect
20 or defense.
21 § 8203. Staleness as notice of defects or defenses.
22 § 8204. Effect of restrictions by issuer on transfer.
23 § 8205. Effect of unauthorized signature on issue.
24 § 8206. Completion or alteration of instrument.
25 § 8207. Rights of issuer with respect to registered owners.
26 § 8208. Effect of signature of authenticating trustee,
27 registrar or transfer agent.
28 Chapter 83. Purchase
29 § 8301. Rights acquired by purchaser; "adverse claim"; title
30 acquired by bona fide purchaser.
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1 § 8302. "Bona fide purchaser."
2 § 8303. "Broker."
3 § 8304. Notice to purchaser of adverse claims.
4 § 8305. Staleness as notice of adverse claims.
5 § 8306. Warranties on presentment and transfer.
6 § 8307. Effect of delivery without indorsement; right to compel
7 indorsement.
8 § 8308. Indorsement, how made; special indorsement; indorser
9 not a guarantor; partial assignment.
10 § 8309. Effect of indorsement without delivery.
11 § 8310. Indorsement of security in bearer form.
12 § 8311. Effect of unauthorized indorsement.
13 § 8312. Effect of guaranteeing signature or indorsement.
14 § 8313. When delivery to purchaser occurs; broker of purchaser
15 as holder.
16 § 8314. Duty to deliver, when completed.
17 § 8315. Action against purchaser based upon wrongful transfer.
18 § 8316. Right of purchaser to requisites for registration of
19 transfer on books.
20 § 8317. Attachment or levy upon security.
21 § 8318. No conversion by good faith delivery.
22 § 8319. Statute of frauds.
23 § 8320. Transfer or pledge within a central depository system.
24 Chapter 84. Registration
25 § 8401. Duty of issuer to register transfer.
26 § 8402. Assurance that indorsements are effective.
27 § 8403. Limited duty of inquiry.
28 § 8404. Liability and nonliability for registration.
29 § 8405. Lost, destroyed and stolen securities.
30 § 8406. Duty of authenticating trustee, transfer agent or
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1 registrar.
2 DIVISION 9. SECURED TRANSACTIONS; SALES OF
3 ACCOUNTS, CONTRACT RIGHTS AND CHATTEL PAPER
4 Chapter 91. Short Title, Applicability and Definitions
5 § 9101. Short title of division.
6 § 9102. Policy and scope of division.
7 § 9103. Accounts, contract rights, general intangibles and
8 equipment relating to another jurisdiction; and
9 incoming goods already subject to a security interest.
10 § 9104. Transactions excluded from division.
11 § 9105. Definitions and index of definitions.
12 § 9106. Definitions: "account"; "contract right"; "general
13 intangibles."
14 § 9107. Definition: "purchase money security interest."
15 § 9108. When after-acquired collateral not security for
16 antecedent debt.
17 § 9109. Classification of goods: "consumer goods"; "equipment";
18 "farm products"; "inventory."
19 § 9110. Sufficiency of description.
20 § 9111. Applicability of bulk transfer laws.
21 § 9112. Where collateral is not owned by debtor.
22 § 9113. Security interests arising under division on sales.
23 Chapter 92. Validity of Security Agreement and Rights of
24 Parties Thereto
25 § 9201. General validity of security agreement.
26 § 9202. Title to collateral immaterial.
27 § 9203. Enforceability of security interest; proceeds, formal
28 requisites.
29 § 9204. When security interest attaches; after-acquired
30 property; future advances.
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1 § 9205. Use or disposition of collateral without accounting
2 permissible.
3 § 9206. Agreement not to assert defenses against assignee;
4 modification of sales warranties where security
5 agreement exists.
6 § 9207. Rights and duties when collateral in possession of
7 secured party.
8 § 9208. Request for statement of account or list of collateral.
9 Chapter 93. Rights of Third Parties; Perfected and Unperfected
10 Security Interests; Rules of Priority
11 § 9301. Persons who take priority over unperfected security
12 interests; "lien creditor."
13 § 9302. When filing is required to perfect security interest;
14 security interests to which filing provisions of
15 division do not apply.
16 § 9303. When security interest is perfected; continuity of
17 perfection.
18 § 9304. Perfection of security interest in instruments,
19 documents, and goods covered by documents; perfection
20 by permissive filing; temporary perfection without
21 filing or transfer of possession.
22 § 9305. When possession by secured party perfects security
23 interest without filing.
24 § 9306. "Proceeds"; rights of secured party on disposition of
25 collateral.
26 § 9307. Protection of buyers of goods.
27 § 9308. Purchase of chattel paper and nonnegotiable
28 instruments.
29 § 9309. Protection of purchasers of instruments and documents.
30 § 9310. Priority of certain liens arising by operation of law.
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1 § 9311. Alienability of rights of debtor; judicial process.
2 § 9312. Priorities among conflicting security interests in same
3 collateral.
4 § 9313. Priority of security interests in fixtures.
5 § 9314. Accessions.
6 § 9315. Priority when goods are commingled or processed.
7 § 9316. Priority subject to subordination.
8 § 9317. Secured party not obligated on contract of debtor.
9 § 9318. Defenses against assignee; modification of contract
10 after notification of assignment; term prohibiting
11 assignment ineffective; identification and proof of
12 assignment.
13 Chapter 94. Filing
14 § 9401. Place of filing; erroneous filing; removal of
15 collateral.
16 § 9402. Formal requisites of financing statement; amendments.
17 § 9403. What constitutes filing; duration of filing; effect of
18 lapsed filing; duties of filing officer.
19 § 9404. Termination statement.
20 § 9405. Assignment of security interest; duties of filing
21 officer.
22 § 9406. Release of collateral; duties of filing officer.
23 § 9407. Information from filing officer.
24 § 9408. Retention of microfilm or other copies in lieu of
25 originals; admissibility of copies in evidence; duties
26 of filing officer.
27 § 9409. (Reserved).
28 § 9410. Duties of filing officer.
29 Chapter 95. Default
30 § 9501. Default; procedure when security agreement covers both
19790S0372B0376 - 20 -
1 real and personal property.
2 § 9502. Collection rights of secured party.
3 § 9503. Right of secured party to take possession after
4 default.
5 § 9504. Right of secured party to dispose of collateral after
6 default; effect of disposition.
7 § 9505. Compulsory disposition of collateral; acceptance of
8 collateral as discharge of obligation.
9 § 9506. Right of debtor to redeem collateral.
10 § 9507. Liability of secured party for failure to comply with
11 chapter.
12 Section 2. Conforming amendments to Title 15.
13 Section 3. Conforming amendment to Title 18.
14 Section 4. Conforming amendment to Title 20.
15 Section 5. Conforming amendments to Title 42.
16 Section 6. Conforming amendment to Title 75.
17 Section 7. Legislative intent.
18 Section 8. Repeal.
19 Section 9. Effective date.
20 The General Assembly of the Commonwealth of Pennsylvania
21 hereby enacts as follows:
22 Section 1. Title 13, act of November 25, 1970 (P.L.707,
23 No.230), known as the Pennsylvania Consolidated Statutes, is
24 amended by adding divisions to read:
25 TITLE 13
26 COMMERCIAL CODE
27 Division
28 1. General Provisions
29 2. Sales
30 3. Commercial Paper
19790S0372B0376 - 21 -
1 4. Bank Deposits and Collections
2 5. Letters of Credit
3 6. Bulk Transfers
4 7. Warehouse Receipts, Bills of Lading and Other
5 Documents of Title
6 8. Investment Securities
7 9. Secured Transactions; Sales of Accounts, Contract Rights
8 and Chattel Paper
9 DIVISION 1
10 GENERAL PROVISIONS
11 Chapter
12 11. Short Title, Construction, Application and Subject
13 Matter of Title
14 12. General Definitions and Principles of Interpretation
15 CHAPTER 11
16 SHORT TITLE, CONSTRUCTION, APPLICATION
17 AND SUBJECT MATTER OF TITLE
18 Sec.
19 1101. Short title of title.
20 1102. Purposes; rules of construction; variation by agreement.
21 1103. Supplementary general principles of law applicable.
22 1104. Construction against implicit repeal.
23 1105. Territorial application of title; power of parties to
24 choose applicable law.
25 1106. Remedies to be liberally administered.
26 1107. Waiver or renunciation of claim or right after breach.
27 1108. (Reserved).
28 1109. Section and subsection captions.
29 § 1101. Short title of title.
30 This title shall be known and may be cited as the "Uniform
19790S0372B0376 - 22 -
1 Commercial Code."
2 § 1102. Purposes; rules of construction; variation by
3 agreement.
4 (a) Title to be liberally construed.--This title shall be
5 liberally construed and applied to promote its underlying
6 purposes and policies.
7 (b) Purposes and policies of title.--Underlying purposes and
8 policies of this title are:
9 (1) To simplify, clarify and modernize the law governing
10 commercial transactions.
11 (2) To permit the continued expansion of commercial
12 practices through custom, usage and agreement of the parties.
13 (3) To make uniform the law among the various
14 jurisdictions.
15 (c) Variation of title by agreement.--The effect of
16 provisions of this title may be varied by agreement, except as
17 otherwise provided in this title and except that the obligations
18 of good faith, diligence, reasonableness and care prescribed by
19 this title may not be disclaimed by agreement but the parties
20 may by agreement determine the standards by which the
21 performance of such obligations is to be measured if such
22 standards are not manifestly unreasonable.
23 (d) Effect of "unless otherwise agreed".--The presence in
24 certain provisions of this title of the words "unless otherwise
25 agreed" or words of similar import does not imply that the
26 effect of other provisions may not be varied by agreement under
27 subsection (c).
28 § 1103. Supplementary general principles of law applicable.
29 Unless displaced by the particular provisions of this title,
30 the principles of law and equity, including the law merchant and
19790S0372B0376 - 23 -
1 the law relative to capacity to contract, principal and agent,
2 estoppel, fraud, misrepresentation, duress, coercion, mistake,
3 bankruptcy, or other validating or invalidating cause shall
4 supplement its provisions.
5 § 1104. Construction against implicit repeal.
6 This title being a general law intended as a unified coverage
7 of its subject matter, no part of it shall be deemed to be
8 impliedly repealed by subsequent legislation if such
9 construction can reasonably be avoided.
10 § 1105. Territorial application of title; power of parties to
11 choose applicable law.
12 (a) General rule.--Except as otherwise provided in this
13 section, when a transaction bears a reasonable relation to this
14 Commonwealth and also to another state or nation the parties may
15 agree that the law either of this Commonwealth or of such other
16 state or nation shall govern their rights and duties. Failing
17 such agreement this title applies to transactions bearing an
18 appropriate relation to this Commonwealth.
19 (b) Limitations on power of parties to choose applicable
20 law.--Where one of the following provisions of this title
21 specifies the applicable law, that provision governs and a
22 contrary agreement is effective only to the extent permitted by
23 the law (including the conflict of laws rules) so specified:
24 Section 2402 (relating to rights of creditors of seller
25 against sold goods).
26 Section 4102 (relating to applicability of division on
27 bank deposits and collections).
28 Section 6102 (relating to bulk transfers subject to
29 division on bulk transfers).
30 Section 8106 (relating to applicability of division on
19790S0372B0376 - 24 -
1 investment securities).
2 Sections 9102 and 9103 (relating to policy and scope of
3 division on secured transactions).
4 § 1106. Remedies to be liberally administered.
5 (a) General rule.--The remedies provided by this title shall
6 be liberally administered to the end that the aggrieved party
7 may be put in as good a position as if the other party had fully
8 performed but neither consequential or special nor penal damages
9 may be had except as specifically provided in this title or by
10 other rule of law.
11 (b) Enforceability of rights and obligations by action.--Any
12 right or obligation declared by this title is enforceable by
13 action unless the provision declaring it specifies a different
14 and limited effect.
15 § 1107. Waiver or renunciation of claim or right after breach.
16 Any claim or right arising out of an alleged breach can be
17 discharged in whole or in part without consideration by a
18 written waiver or renunciation signed and delivered by the
19 aggrieved party.
20 § 1108. (Reserved).
21 § 1109. Section and subsection captions.
22 Notwithstanding 1 Pa.C.S. § 1101(b) (relating to enumeration
23 and use of unofficial provisions), section captions are parts of
24 this title but subsection captions are not parts of this title.
25 CHAPTER 12
26 GENERAL DEFINITIONS AND PRINCIPLES
27 OF INTERPRETATION
28 Sec.
29 1201. General definitions.
30 1202. Prima facie evidence by third party documents.
19790S0372B0376 - 25 -
1 1203. Obligation of good faith.
2 1204. Time; reasonable time; "seasonably."
3 1205. Course of dealing and usage of trade.
4 1206. Statute of frauds for kinds of personal property not
5 otherwise covered.
6 1207. Performance or acceptance under reservation of rights.
7 1208. Option to accelerate at will.
8 § 1201. General definitions.
9 Subject to additional definitions contained in the subsequent
10 provisions of this title which are applicable to specific
11 provisions of this title, the following words and phrases when
12 used in this title shall have, unless the context clearly
13 indicates otherwise, the meanings given to them in this section:
14 "Action." In the sense of a judicial proceeding includes
15 recoupment, counterclaim, set-off, suit in equity and any other
16 proceedings in which rights are determined.
17 "Aggrieved party." A party entitled to resort to a remedy.
18 "Agreement." The bargain of the parties in fact as found in
19 their language or by implication from other circumstances
20 including course of dealing or usage of trade or course of
21 performance as provided in this title (sections 1205 and 2208)
22 Whether an agreement has legal consequences is determined by the
23 provisions of this title, if applicable; otherwise by the law of
24 contracts (section 1103 (relating to supplementary general
25 principles of law applicable)). (Compare definition of
26 "contract".)
27 "Airbill." A document serving for air transportation as a
28 bill of lading does for marine or rail transportation, and
29 includes an air consignment note or air waybill.
30 "Bank." Any person engaged in the business of banking.
19790S0372B0376 - 26 -
1 "Bearer." The person in possession of an instrument,
2 document of title, or security payable to bearer or indorsed in
3 blank.
4 "Bill of lading." A document evidencing the receipt of goods
5 for shipment issued by a person engaged in the business of
6 transporting or forwarding goods, and includes an airbill.
7 "Branch." Includes a separately incorporated foreign branch
8 of a bank.
9 "Burden of establishing a fact." The burden of persuading
10 the triers of fact that the existence of the fact is more
11 probable than its nonexistence.
12 "Buyer in ordinary course of business." A person who in good
13 faith and without knowledge that the sale to him is in violation
14 of the ownership rights or security interest of a third party in
15 the goods buys in ordinary course from a person in the business
16 of selling goods of that kind but does not include a pawnbroker.
17 "Buying." Buying may be for cash or by exchange of other
18 property or on secured or unsecured credit and includes
19 receiving goods or documents of title under a preexisting
20 contract for sale but does not include a transfer in bulk or as
21 security for or in total or partial satisfaction of a money
22 debt.
23 "Conspicuous." A term or clause is conspicuous when it is so
24 written that a reasonable person against whom it is to operate
25 ought to have noticed it.
26 A printed heading in capitals (as: NONNEGOTIABLE BILL OF
27 LADING) is conspicuous.
28 Language in the body of a form is conspicuous if it is in
29 larger or other contrasting type or color. But in a telegram
30 any stated term is conspicuous.
19790S0372B0376 - 27 -
1 Whether a term or clause is conspicuous or not is for
2 decision by the court.
3 "Contract." The total legal obligation which results from
4 the agreement of the parties as affected by this title and any
5 other applicable rules of law. (Compare definition of
6 "agreement".)
7 "Creditor." Includes:
8 a general creditor;
9 a secured creditor;
10 a lien creditor; and
11 any representative of creditors, including an assignee
12 for the benefit of creditors, a trustee in bankruptcy, a
13 receiver in equity and an executor or administrator of an
14 insolvent debtor's or assignor's estate.
15 "Defendant." Includes a person in the position of defendant
16 in a cross-action or counterclaim.
17 "Delivery." With respect to instruments, documents of title,
18 chattel paper or securities, means voluntary transfer of
19 possession.
20 "Discover." See definition of "notice."
21 "Document of title." Includes:
22 a bill of lading;
23 a dock warrant;
24 a dock receipt;
25 a warehouse receipt or order for the delivery of goods;
26 and
27 any other document which in the regular course of
28 business or financing is treated as adequately evidencing
29 that the person in possession of it is entitled to receive,
30 hold and dispose of the document and the goods it covers.
19790S0372B0376 - 28 -
1 To be a document of title a document must purport to be
2 issued by or addressed to a bailee and purport to cover goods in
3 the possession of the bailee which are either identified or are
4 fungible portions of an identified mass.
5 "Fault." Wrongful act, omission or breach.
6 "Fungible." With respect to goods or securities, means goods
7 or securities of which any unit is, by nature or usage of trade,
8 the equivalent of any other like unit. Goods which are not
9 fungible shall be deemed fungible for the purpose of this title
10 to the extent that under a particular agreement or document
11 unlike units are treated as equivalents.
12 "Genuine." Free of forgery or counterfeiting.
13 "Good faith." Honesty in fact in the conduct or transaction
14 concerned.
15 "Holder." A person who is in possession of a document of
16 title or an instrument or an investment security drawn, issued
17 or indorsed to him or to his order or to bearer or in blank.
18 "Honor." To pay or to accept and pay, or where a credit so
19 engages to purchase or discount a draft complying with the terms
20 of the credit.
21 "Insolvency proceedings." Includes any assignment for the
22 benefit of creditors or other proceedings intended to liquidate
23 or rehabilitate the estate of the person involved.
24 "Insolvent." A person is insolvent who either has ceased to
25 pay his debts in the ordinary course of business or cannot pay
26 his debts as they become due or is insolvent within the meaning
27 of the Federal bankruptcy law.
28 "Knows" or "knowledge." See definition of "notice."
29 "Learn." See definition of "notice."
30 "Money." A medium of exchange authorized or adopted by a
19790S0372B0376 - 29 -
1 domestic or foreign government as a part of its currency.
2 "Notice." A person has "notice" of a fact when:
3 (1) he has actual knowledge of it;
4 (2) he has received a notice or notification of it; or
5 (3) from all the facts and circumstances known to him at
6 the time in question he has reason to know that it exists.
7 A person "knows" or has "knowledge" of a fact when he has
8 actual knowledge of it. "Discover" or "learn" or a word or
9 phrase of similar import refers to knowledge rather than to
10 reason to know. The time and circumstances under which a notice
11 or notification may cease to be effective are not determined by
12 this title.
13 A person "notifies" or "gives" a notice or notification to
14 another by taking such steps as may be reasonably required to
15 inform the other in ordinary course whether or not such other
16 actually comes to know of it. A person "receives" a notice or
17 notification when:
18 (1) it comes to his attention; or
19 (2) it is duly delivered at the place of business
20 through which the contract was made or at any other place
21 held out by him as the place for receipt of such
22 communications.
23 Notice, knowledge or a notice or notification received by an
24 organization is effective for a particular transaction from the
25 time when it is brought to the attention of the individual
26 conducting that transaction, and in any event from the time when
27 it would have been brought to his attention if the organization
28 had exercised due diligence. An organization exercises due
29 diligence if it maintains reasonable routines for communicating
30 significant information to the person conducting the transaction
19790S0372B0376 - 30 -
1 and there is reasonable compliance with the routines. Due
2 diligence does not require an individual acting for the
3 organization to communicate information unless such
4 communication is part of his regular duties or unless he has
5 reason to know of the transaction and that the transaction would
6 be materially affected by the information.
7 "Organization." Includes a corporation, government or
8 governmental subdivision or agency, business trust, estate,
9 trust, partnership or association, two or more persons having a
10 joint or common interest, or any other legal or commercial
11 entity.
12 "Party." As distinct from "third party," means a person who
13 has engaged in a transaction or made an agreement within this
14 title.
15 "Person." Includes an individual or an organization. See
16 section 1102 (relating to purposes; rules of construction;
17 variation by agreement).
18 "Presumption" or "presumed." Either means that the trier of
19 fact must find the existence of the fact presumed unless and
20 until evidence is introduced which would support a finding of
21 its nonexistence.
22 "Purchase." Includes taking by sale, discount, negotiation,
23 mortgage, pledge, lien, issue or reissue, gift or any other
24 voluntary transaction creating an interest in property.
25 "Purchaser." A person who takes by purchase.
26 "Remedy." Any remedial right to which an aggrieved party is
27 entitled with or without resort to a tribunal.
28 "Representative." Includes an agent, an officer of a
29 corporation or association, and a trustee, executor or
30 administrator of an estate, or any other person empowered to act
19790S0372B0376 - 31 -
1 for another.
2 "Rights." Includes remedies.
3 "Security interest."
4 A security interest means an interest in personal
5 property or fixtures which secures payment or performance of
6 an obligation.
7 The retention or reservation of title by a seller of
8 goods notwithstanding shipment or delivery to the buyer
9 (section 2401) is limited in effect to a reservation of a
10 "security interest."
11 The term also includes any interest of a buyer of
12 accounts, chattel paper, or contract rights which is subject
13 to Division 9 (relating to secured transactions).
14 The special property interest of a buyer of goods on
15 identification of such goods to a contract for sale under
16 section 2401 (relating to passing of title; reservation for
17 security) is not a "security interest," but a buyer may also
18 acquire a "security interest" by complying with Division 9.
19 Unless a lease or consignment is intended as security,
20 reservation of title thereunder is not a "security interest"
21 but a consignment is in any event subject to the provisions
22 on consignment sales (section 2326).
23 Whether a lease is intended as security is to be
24 determined by the facts of each case; however:
25 (1) the inclusion of an option to purchase does not
26 of itself make the lease one intended for security; and
27 (2) an agreement that upon compliance with the terms
28 of the lease the lessee shall become or has the option to
29 become the owner of the property for no additional
30 consideration or for a nominal consideration does make
19790S0372B0376 - 32 -
1 the lease one intended for security.
2 "Send." In connection with any writing or notice, means to
3 deposit in the mail or deliver for transmission by any other
4 usual means of communication with postage or cost of
5 transmission provided for and properly addressed and in the case
6 of an instrument to an address specified thereon or otherwise
7 agreed, or if there be none to any address reasonable under the
8 circumstances. The receipt of any writing or notice within the
9 time at which it would have arrived if properly sent has the
10 effect of a proper sending.
11 "Signed." Includes any symbol executed or adopted by a party
12 with present intention to authenticate a writing.
13 "Surety." Includes guarantor.
14 "Telegram." Includes a message transmitted by radio,
15 teletype, cable, any mechanical method of transmission, or the
16 like.
17 "Term." That portion of an agreement which relates to a
18 particular matter.
19 "Unauthorized signature or indorsement." A signature or
20 indorsement made without actual, implied or apparent authority
21 and includes a forgery.
22 "Value." Except as otherwise provided with respect to
23 negotiable instruments (section 3303) and bank collections
24 (sections 4208 and 4209) a person gives "value" for rights if he
25 acquires them:
26 (1) in return for a binding commitment to extend credit
27 or for the extension of immediately available credit whether
28 or not drawn upon and whether or not a chargeback is provided
29 for in the event of difficulties in collection;
30 (2) as security for or in total or partial satisfaction
19790S0372B0376 - 33 -
1 of a pre-existing claim;
2 (3) by accepting delivery pursuant to a pre-existing
3 contract for purchase; or
4 (4) generally, in return for any consideration
5 sufficient to support a simple contract.
6 "Warehouse receipt." A receipt issued by a person engaged in
7 the business of storing goods for hire.
8 "Written" or "writing." Includes printing, typewriting or
9 any other intentional reduction to tangible form.
10 § 1202. Prima facie evidence by third party documents.
11 A document in due form purporting to be a bill of lading,
12 policy or certificate of insurance, official weigher's or
13 inspector's certificate, consular invoice, or any other document
14 authorized or required by the contract to be issued by a third
15 party shall be prima facie evidence of its own authenticity and
16 genuineness and of the facts stated in the document by the third
17 party.
18 § 1203. Obligation of good faith.
19 Every contract or duty within this title imposes an
20 obligation of good faith in its performance or enforcement.
21 § 1204. Time; reasonable time; "seasonably."
22 (a) Time fixed by agreement.--Whenever this title requires
23 any action to be taken within a reasonable time, any time which
24 is not manifestly unreasonable may be fixed by agreement.
25 (b) Reasonable time.--What is a reasonable time for taking
26 any action depends on the nature, purpose and circumstances of
27 such action.
28 (c) Definition of "seasonably".--An action is taken
29 "seasonably" when it is taken at or within the time agreed or if
30 no time is agreed at or within a reasonable time.
19790S0372B0376 - 34 -
1 § 1205. Course of dealing and usage of trade.
2 (a) Definition of course of dealing.--A course of dealing is
3 a sequence of previous conduct between the parties to a
4 particular transaction which is fairly to be regarded as
5 establishing a common basis of understanding for interpreting
6 their expressions and other conduct.
7 (b) Usage of trade.--A usage of trade is any practice or
8 method of dealing having such regularity of observance in a
9 place, vocation or trade as to justify an expectation that it
10 will be observed with respect to the transaction in question.
11 The existence and scope of such a usage are to be proved as
12 facts. If it is established that such a usage is embodied in a
13 written trade code or similar writing the interpretation of the
14 writing is for the court.
15 (c) Effect on agreements.--A course of dealing between
16 parties and any usage of trade in the vocation or trade in which
17 they are engaged or of which they are or should be aware give
18 particular meaning to and supplement or qualify terms of an
19 agreement.
20 (d) Construction.--The express terms of an agreement and an
21 applicable course of dealing or usage of trade shall be
22 construed wherever reasonable as consistent with each other; but
23 when such construction is unreasonable express terms control
24 both course of dealing and usage of trade and course of dealing
25 controls usage of trade.
26 (e) Applicable usage of trade.--An applicable usage of trade
27 in the place where any part of performance is to occur shall be
28 used in interpreting the agreement as to that part of the
29 performance.
30 (f) Admissibility of evidence.--Evidence of a relevant usage
19790S0372B0376 - 35 -
1 of trade offered by one party is not admissible unless and until
2 he has given the other party such notice as the court finds
3 sufficient to prevent unfair surprise to the latter.
4 § 1206. Statute of frauds for kinds of personal property not
5 otherwise covered.
6 (a) General rule.--Except in the cases described in
7 subsection (b), a contract for the sale of personal property is
8 not enforceable by way of action or defense beyond $5,000 in
9 amount or value of remedy unless there is some writing which
10 indicates that a contract for sale has been made between the
11 parties at a defined or stated price, reasonably identifies the
12 subject matter, and is signed by the party against whom
13 enforcement is sought or by his authorized agent.
14 (b) Exceptions.--Subsection (a) does not apply to contracts
15 for the sale of goods (section 2201) nor of securities (section
16 8319) nor to security agreements (section 9203).
17 § 1207. Performance or acceptance under reservation of rights.
18 A party who with explicit reservation of rights performs or
19 promises performance or assents to performance in a manner
20 demanded or offered by the other party does not thereby
21 prejudice the rights reserved. Such words as "without
22 prejudice," "under protest" or the like are sufficient.
23 § 1208. Option to accelerate at will.
24 A term providing that one party or his successor in interest
25 may accelerate payment or performance or require collateral or
26 additional collateral "at will" or "when he deems himself
27 insecure" or in words of similar import shall be construed to
28 mean that he shall have power to do so only if he in good faith
29 believes that the prospect of payment or performance is
30 impaired. The burden of establishing lack of good faith is on
19790S0372B0376 - 36 -
1 the party against whom the power has been exercised.
2 DIVISION 2
3 SALES
4 Chapter
5 21. Short Title, General Construction and Subject Matter
6 22. Form, Formation and Readjustment of Contract
7 23. General Obligation and Construction of Contract
8 24. Title, Creditors and Good Faith Purchasers
9 25. Performance
10 26. Breach, Repudiation and Excuse
11 27. Remedies
12 CHAPTER 21
13 SHORT TITLE, GENERAL CONSTRUCTION
14 AND SUBJECT MATTER
15 Sec.
16 2101. Short title of division.
17 2102. Scope; certain security and other transactions excluded
18 from division.
19 2103. Definitions and index of definitions.
20 2104. Definitions: "merchant"; "between merchants";
21 "financing agency."
22 2105. Definitions: transferability; "goods"; "future" goods;
23 "lot"; "commercial unit."
24 2106. Definitions: "contract"; "agreement"; "contract for
25 sale"; "sale"; "present sale"; "conforming" to contract;
26 "termination"; "cancellation."
27 2107. Goods to be severed from realty: recording.
28 § 2101. Short title of division.
29 This division shall be known and may be cited as the "Uniform
30 Commercial Code--Sales."
19790S0372B0376 - 37 -
1 § 2102. Scope; certain security and other transactions excluded
2 from division.
3 Unless the context otherwise requires, this division applies
4 to transactions in goods; it does not apply to any transaction
5 which although in the form of an unconditional contract to sell
6 or present sale is intended to operate only as a security
7 transaction, nor does this division impair or repeal any statute
8 regulating sales to consumers, farmers or other specified
9 classes of buyers.
10 § 2103. Definitions and index of definitions.
11 (a) Definitions.--The following words and phrases when used
12 in this division shall have, unless the context clearly
13 indicates otherwise, the meanings given to them in this
14 subsection:
15 "Buyer." A person who buys or contracts to buy goods.
16 "Good faith." In the case of a merchant, good faith means
17 honesty in fact and the observance of reasonable commercial
18 standards of fair dealing in the trade.
19 "Receipt." Receipt of goods means taking physical possession
20 of them.
21 "Seller." A person who sells or contracts to sell goods.
22 (b) Index of other definitions in division.--Other
23 definitions applying to this division or to specified chapters
24 thereof, and the sections in which they appear are:
25 "Acceptance." Section 2606.
26 "Banker's credit." Section 2325.
27 "Between merchants." Section 2104.
28 "Cancellation." Section 2106(4).
29 "Commercial unit." Section 2105.
30 "Confirmed credit." Section 2325.
19790S0372B0376 - 38 -
1 "Conforming to contract." Section 2106.
2 "Contract for sale." Section 2106.
3 "Cover." Section 2712.
4 "Entrusting." Section 2403.
5 "Financing agency." Section 2104.
6 "Future goods." Section 2105.
7 "Goods." Section 2105.
8 "Identification." Section 2501.
9 "Installment contract." Section 2612.
10 "Letter of credit." Section 2325.
11 "Lot." Section 2105.
12 "Merchant." Section 2104.
13 "Overseas." Section 2323.
14 "Person in position of seller." Section 2707.
15 "Present sale." Section 2106.
16 "Sale." Section 2106.
17 "Sale on approval." Section 2326.
18 "Sale or return." Section 2326.
19 "Termination." Section 2106.
20 (c) Index of definitions in other divisions.--The following
21 definitions in other divisions apply to this division:
22 "Check." Section 3104.
23 "Consignee." Section 7102.
24 "Consignor." Section 7102.
25 "Consumer goods." Section 9109.
26 "Dishonor." Section 3507.
27 "Draft." Section 3104.
28 (d) Applicability of general definitions and principles.--In
29 addition, Division 1 (relating to general provisions) contains
30 general definitions and principles of construction and
19790S0372B0376 - 39 -
1 interpretation applicable throughout this division.
2 § 2104. Definitions: "merchant"; "between merchants";
3 "financing agency."
4 The following words and phrases when used in this division
5 shall have, unless the context clearly indicates otherwise, the
6 meanings given to them in this section:
7 "Between merchants." Between merchants means in any
8 transaction with respect to which both parties are chargeable
9 with the knowledge or skill of merchants.
10 "Financing agency." A bank, finance company, or other person
11 who in the ordinary course of business makes advances against
12 goods or documents of title or who by arrangement with either
13 the seller or the buyer intervenes in ordinary course to make or
14 collect payment due or claimed under the contract for sale, as
15 by purchasing or paying the draft of the seller or making
16 advances against it or by merely taking it for collection
17 whether or not documents of title accompany the draft.
18 "Financing agency" includes also a bank or other person who
19 similarly intervenes between persons who are in the position of
20 seller and buyer in respect to the goods (see section 2707).
21 "Merchant." A person who:
22 deals in goods of the kind; or
23 otherwise by his occupation holds himself out as having
24 knowledge or skill peculiar to the practices or goods
25 involved in the transaction or to whom such knowledge or
26 skill may be attributed by his employment of an agent or
27 broker or other intermediary who by his occupation holds
28 himself out as having such knowledge or skill.
29 § 2105. Definitions: transferability; "goods"; "future" goods;
30 "lot"; "commercial unit."
19790S0372B0376 - 40 -
1 (a) "Goods".--"Goods" means all things (including specially
2 manufactured goods) which are movable at the time of
3 identification to the contract for sale other than the money in
4 which the price is to be paid, investment securities (Division
5 8) and things in action. "Goods" also includes the unborn young
6 of animals and growing crops and other identified things
7 attached to realty as described in section 2107 (relating to
8 goods to be severed from realty; recording).
9 (b) Transferability; "future" goods.--Goods must be both
10 existing and identified before any interest in them can pass.
11 Goods which are not both existing and identified are "future"
12 goods. A purported present sale of future goods or of any
13 interest therein operates as a contract to sell.
14 (c) Sale of part interest in goods.--There may be a sale of
15 a part interest in existing identified goods.
16 (d) Fungible goods.--An undivided share in an identified
17 bulk of fungible goods is sufficiently identified to be sold
18 although the quantity of the bulk is not determined. Any agreed
19 proportion of such a bulk or any quantity thereof agreed upon by
20 number, weight or other measure may to the extent of the
21 interest of the seller in the bulk be sold to the buyer who then
22 becomes an owner in common.
23 (e) "Lot".--"Lot" means a parcel or a single article which
24 is the subject matter of a separate sale or delivery, whether or
25 not it is sufficient to perform the contract.
26 (f) "Commercial unit".--"Commercial unit" means such a unit
27 of goods as by commercial usage is a single whole for purposes
28 of sale and division of which materially impairs its character
29 or value on the market or in use. A commercial unit may be a
30 single article (as a machine) or a set of articles (as a suite
19790S0372B0376 - 41 -
1 of furniture or an assortment of sizes) or a quantity (as a
2 bale, gross, or carload) or any other unit treated in use or in
3 the relevant market as a single whole.
4 § 2106. Definitions: "contract"; "agreement"; "contract for
5 sale"; "sale"; "present sale"; "conforming" to
6 contract; "termination"; "cancellation."
7 (a) "Contract", "agreement", "sale".--In this division
8 unless the context otherwise requires "contract" and "agreement"
9 are limited to those relating to the present or future sale of
10 goods. "Contract for sale" includes both a present sale of goods
11 and a contract to sell goods at a future time. A "sale" consists
12 in the passing of title from the seller to the buyer for a price
13 (section 2401). A "present sale" means a sale which is
14 accomplished by the making of the contract.
15 (b) "Conforming" to contract.--Goods or conduct including
16 any part of a performance are "conforming" or conform to the
17 contract when they are in accordance with the obligations under
18 the contract.
19 (c) "Termination".--"Termination" occurs when either party
20 pursuant to a power created by agreement or law puts an end to
21 the contract otherwise than for its breach. On "termination" all
22 obligations which are still executory on both sides are
23 discharged but any right based on prior breach or performance
24 survives.
25 (d) "Cancellation".--"Cancellation" occurs when either party
26 puts an end to the contract for breach by the other and its
27 effect is the same as that of "termination" except that the
28 cancelling party also retains any remedy for breach of the whole
29 contract or any unperformed balance.
30 § 2107. Goods to be severed from realty: recording.
19790S0372B0376 - 42 -
1 (a) Timber, minerals and structures.--A contract for the
2 sale of timber, minerals or the like or a structure or its
3 materials to be removed from realty is a contract for the sale
4 of goods within this division if they are to be severed by the
5 seller but until severance a purported present sale thereof
6 which is not effective as a transfer of an interest in land is
7 effective only as a contract to sell.
8 (b) Other property severable without material harm.--A
9 contract for the sale apart from the land of growing crops or
10 other things attached to realty and capable of severance without
11 material harm thereto but not described in subsection (a) is a
12 contract for the sale of goods within this division whether the
13 subject matter is to be severed by the buyer or by the seller
14 even though it forms part of the realty at the time of
15 contracting, and the parties can by identification effect a
16 present sale before severance.
17 (c) Recording.--The provisions of this section are subject
18 to any third party rights provided by the law relating to realty
19 records, and the contract for sale may be executed and recorded
20 as a document transferring an interest in land and shall then
21 constitute notice to third parties of the rights of the buyer
22 under the contract for sale.
23 CHAPTER 22
24 FORM, FORMATION AND READJUSTMENT OF CONTRACT
25 Sec.
26 2201. Formal requirements; statute of frauds.
27 2202. Final written expression: parol or extrinsic evidence.
28 2203. Seals inoperative.
29 2204. Formation in general.
30 2205. Firm offers.
19790S0372B0376 - 43 -
1 2206. Offer and acceptance in formation of contract.
2 2207. Additional terms in acceptance or confirmation.
3 2208. Course of performance or practical construction.
4 2209. Modification, rescission and waiver.
5 2210. Delegation of performance; assignment of rights.
6 § 2201. Formal requirements; statute of frauds.
7 (a) General rule.--Except as otherwise provided in this
8 section a contract for the sale of goods for the price of $500
9 or more is not enforceable by way of action or defense unless
10 there is some writing sufficient to indicate that a contract for
11 sale has been made between the parties and signed by the party
12 against whom enforcement is sought or by his authorized agent or
13 broker. A writing is not insufficient because it omits or
14 incorrectly states a term agreed upon but the contract is not
15 enforceable under this subsection beyond the quantity of goods
16 shown in such writing.
17 (b) Writing confirming contract between merchants.--Between
18 merchants if within a reasonable time a writing in confirmation
19 of the contract and sufficient against the sender is received
20 and the party receiving it has reason to know its contents, it
21 satisfies the requirements of subsection (a) against such party
22 unless written notice of objection to its contents is given
23 within ten days after it is received.
24 (c) Enforceability of contracts not satisfying general
25 requirements.--A contract which does not satisfy the
26 requirements of subsection (a) but which is valid in other
27 respects is enforceable:
28 (1) if the goods are to be specially manufactured for
29 the buyer and are not suitable for sale to others in the
30 ordinary course of the business of the seller and the seller,
19790S0372B0376 - 44 -
1 before notice of repudiation is received and under
2 circumstances which reasonably indicate that the goods are
3 for the buyer, has made either a substantial beginning of
4 their manufacture or commitments for their procurement;
5 (2) if the party against whom enforcement is sought
6 admits in his pleading, testimony or otherwise in court that
7 a contract for sale was made, but the contract is not
8 enforceable under this provision beyond the quantity of goods
9 admitted; or
10 (3) with respect to goods for which payment has been
11 made and accepted or which have been received and accepted
12 (section 2606).
13 § 2202. Final written expression: parol or extrinsic evidence.
14 Terms with respect to which the confirmatory memoranda of the
15 parties agree or which are otherwise set forth in a writing
16 intended by the parties as a final expression of their agreement
17 with respect to such terms as are included therein may not be
18 contradicted by evidence of any prior agreement or of a
19 contemporaneous oral agreement but may be explained or
20 supplemented:
21 (1) by course of dealing or usage of trade (section
22 1205) or by course of performance (section 2208); and
23 (2) by evidence of consistent additional terms unless
24 the court finds the writing to have been intended also as a
25 complete and exclusive statement of the terms of the
26 agreement.
27 § 2203. Seals inoperative.
28 The affixing of a seal to a writing evidencing a contract for
29 sale or an offer to buy or sell goods does not constitute the
30 writing a sealed instrument and the law with respect to sealed
19790S0372B0376 - 45 -
1 instruments does not apply to such a contract or offer.
2 § 2204. Formation in general.
3 (a) General rule.--A contract for sale of goods may be made
4 in any manner sufficient to show agreement, including conduct by
5 both parties which recognizes the existence of such a contract.
6 (b) Effect of undetermined time of making agreement.--An
7 agreement sufficient to constitute a contract for sale may be
8 found even though the moment of its making is undetermined.
9 (c) Effect of open terms.--Even though one or more terms are
10 left open a contract for sale does not fail for indefiniteness
11 if the parties have intended to make a contract and there is a
12 reasonably certain basis for giving an appropriate remedy.
13 § 2205. Firm offers.
14 An offer by a merchant to buy or sell goods in a signed
15 writing which by its terms gives assurance that it will be held
16 open is not revocable, for lack of consideration, during the
17 time stated or if no time is stated for a reasonable time, but
18 in no event may such period of irrevocability exceed three
19 months; but any such term of assurance on a form supplied by the
20 offeree must be separately signed by the offeror.
21 § 2206. Offer and acceptance in formation of contract.
22 (a) General rule.--Unless otherwise unambiguously indicated
23 by the language or circumstances:
24 (1) an offer to make a contract shall be construed as
25 inviting acceptance in any manner and by any medium
26 reasonable in the circumstances; and
27 (2) an order or other offer to buy goods for prompt or
28 current shipment shall be construed as inviting acceptance
29 either by a prompt promise to ship or by the prompt or
30 current shipment of conforming or nonconforming goods, but
19790S0372B0376 - 46 -
1 such a shipment of nonconforming goods does not constitute an
2 acceptance if the seller seasonably notifies the buyer that
3 the shipment is offered only as an accommodation to the
4 buyer.
5 (b) Beginning requested performance without notice.--Where
6 the beginning of a requested performance is a reasonable mode of
7 acceptance an offeror who is not notified of acceptance within a
8 reasonable time may treat the offer as having lapsed before
9 acceptance.
10 § 2207. Additional terms in acceptance or confirmation.
11 (a) General rule.--A definite and seasonable expression of
12 acceptance or a written confirmation which is sent within a
13 reasonable time operates as an acceptance even though it states
14 terms additional to or different from those offered or agreed
15 upon, unless acceptance is expressly made conditional on assent
16 to the additional or different terms.
17 (b) Effect on contract.--The additional terms are to be
18 construed as proposals for addition to the contract. Between
19 merchants such terms become part of the contract unless:
20 (1) the offer expressly limits acceptance to the terms
21 of the offer;
22 (2) they materially alter it; or
23 (3) notification of objection to them has already been
24 given or is given within a reasonable time after notice of
25 them is received.
26 (c) Conduct establishing contract.--Conduct by both parties
27 which recognizes the existence of a contract is sufficient to
28 establish a contract for sale although the writings of the
29 parties do not otherwise establish a contract. In such case the
30 terms of the particular contract consist of those terms on which
19790S0372B0376 - 47 -
1 the writings of the parties agree, together with any
2 supplementary terms incorporated under any other provisions of
3 this title.
4 § 2208. Course of performance or practical construction.
5 (a) Relevancy of accepted performance.--Where the contract
6 for sale involves repeated occasions for performance by either
7 party with knowledge of the nature of the performance and
8 opportunity for objection to it by the other, any course of
9 performance accepted or acquiesced in without objection shall be
10 relevant to determine the meaning of the agreement.
11 (b) Construction of express terms and performance.--The
12 express terms of the agreement and any such course of
13 performance, as well as any course of dealing and usage of
14 trade, shall be construed whenever reasonable as consistent with
15 each other; but when such construction is unreasonable, express
16 terms shall control course of performance and course of
17 performance shall control both course of dealing and usage of
18 trade (section 1205).
19 (c) Waiver or modification of terms inconsistent with
20 performance.--Subject to the provisions of section 2209
21 (relating to modification, rescission and waiver), such course
22 of performance shall be relevant to show a waiver or
23 modification of any term inconsistent with such course of
24 performance.
25 § 2209. Modification, rescission and waiver.
26 (a) Consideration unnecessary for modification.--An
27 agreement modifying a contract within this division needs no
28 consideration to be binding.
29 (b) Writing excluding modification or rescission.--A signed
30 agreement which excludes modification or rescission except by a
19790S0372B0376 - 48 -
1 signed writing cannot be otherwise modified or rescinded, but
2 except as between merchants such a requirement on a form
3 supplied by the merchant must be separately signed by the other
4 party.
5 (c) Compliance of modified contract with statute of
6 frauds.--The requirements of section 2201 (relating to formal
7 requirements; statute of frauds) must be satisfied if the
8 contract as modified is within its provisions.
9 (d) Ineffective modification or rescission as waiver.--
10 Although an attempt at modification or rescission does not
11 satisfy the requirements of subsection (b) or (c) it can operate
12 as a waiver.
13 (e) Retraction of waiver.--A party who has made a waiver
14 affecting an executory portion of the contract may retract the
15 waiver by reasonable notification received by the other party
16 that strict performance will be required of any term waived,
17 unless the retraction would be unjust in view of a material
18 change of position in reliance on the waiver.
19 § 2210. Delegation of performance; assignment of rights.
20 (a) Delegation of performance.--A party may perform his duty
21 through a delegate unless otherwise agreed or unless the other
22 party has a substantial interest in having his original promisor
23 perform or control the acts required by the contract. No
24 delegation of performance relieves the party delegating of any
25 duty to perform or any liability for breach.
26 (b) Assignment of rights.--Unless otherwise agreed all
27 rights of either seller or buyer can be assigned except where
28 the assignment would materially change the duty of the other
29 party, increase materially the burden or risk imposed on him by
30 his contract, or impair materially his chance of obtaining
19790S0372B0376 - 49 -
1 return performance. A right to damages for breach of the whole
2 contract or a right arising out of due performance by the
3 assignor of his entire obligation can be assigned despite
4 agreement otherwise.
5 (c) Assignment prohibition limited to performance.--Unless
6 the circumstances indicate the contrary, a prohibition of
7 assignment of "the contract" is to be construed as barring only
8 the delegation to the assignee of the performance of the
9 assignor.
10 (d) Effect and enforceability of general assignment.--An
11 assignment of "the contract" or of "all my rights under the
12 contract" or an assignment in similar general terms is an
13 assignment of rights and unless the language or the
14 circumstances (as in an assignment for security) indicate the
15 contrary, it is a delegation of performance of the duties of the
16 assignor and its acceptance by the assignee constitutes a
17 promise by him to perform those duties. This promise is
18 enforceable by either the assignor or the other party to the
19 original contract.
20 (e) Security for assignment delegating performance.--The
21 other party may treat any assignment which delegates performance
22 as creating reasonable grounds for insecurity and may without
23 prejudice to his rights against the assignor demand assurances
24 from the assignee (section 2609).
25 CHAPTER 23
26 GENERAL OBLIGATION AND CONSTRUCTION
27 OF CONTRACT
28 Sec.
29 2301. General obligations of parties.
30 2302. Unconscionable contract or clause.
19790S0372B0376 - 50 -
1 2303. Allocation or division of risks.
2 2304. Price payable in money, goods, realty or otherwise.
3 2305. Open price term.
4 2306. Output, requirements and exclusive dealings.
5 2307. Delivery in single lot or several lots.
6 2308. Absence of specified place for delivery.
7 2309. Absence of specific time provisions; notice of
8 termination.
9 2310. Open time for payment or running of credit; authority
10 to ship under reservation.
11 2311. Options and cooperation respecting performance.
12 2312. Warranty of title and against infringement; obligation
13 of buyer against infringement.
14 2313. Express warranties by affirmation, promise,
15 description or sample.
16 2314. Implied warranty: merchantability; usage of trade.
17 2315. Implied warranty: fitness for particular purpose.
18 2316. Exclusion or modification of warranties.
19 2317. Cumulation and conflict of warranties express or
20 implied.
21 2318. Third party beneficiaries of warranties express or
22 implied.
23 2319. F.O.B. and F.A.S. terms.
24 2320. C.I.F. and C. & F. terms.
25 2321. C.I.F. or C. & F.: "net landed weights"; "payment on
26 arrival"; warranty of condition on arrival.
27 2322. Delivery "ex-ship."
28 2323. Form of bill of lading required in overseas shipment;
29 "overseas."
30 2324. "No arrival, no sale" term.
19790S0372B0376 - 51 -
1 2325. "Letter of credit" term; "confirmed credit."
2 2326. Sale on approval and sale or return; consignment sales
3 and rights of creditors.
4 2327. Special incidents of sale on approval and sale or
5 return.
6 2328. Sale by auction.
7 § 2301. General obligations of parties.
8 The obligation of the seller is to transfer and deliver and
9 that of the buyer is to accept and pay in accordance with the
10 contract.
11 § 2302. Unconscionable contract or clause.
12 (a) Finding and authority of court.--If the court as a
13 matter of law finds the contract or any clause of the contract
14 to have been unconscionable at the time it was made, the court
15 may:
16 (1) refuse to enforce the contract;
17 (2) enforce the remainder of the contract without the
18 unconscionable clause; or
19 (3) so limit the application of any unconscionable
20 clause as to avoid any unconscionable result.
21 (b) Evidence by parties.--When it is claimed or appears to
22 the court that the contract or any clause thereof may be
23 unconscionable the parties shall be afforded a reasonable
24 opportunity to present evidence as to its commercial setting,
25 purpose and effect to aid the court in making the determination.
26 § 2303. Allocation or division of risks.
27 Where this division allocates a risk or a burden as between
28 the parties "unless otherwise agreed," the agreement may not
29 only shift the allocation but may also divide the risk or
30 burden.
19790S0372B0376 - 52 -
1 § 2304. Price payable in money, goods, realty or otherwise.
2 (a) General rule.--The price can be made payable in money or
3 otherwise. If it is payable in whole or in part in goods each
4 party is a seller of the goods which he is to transfer.
5 (b) Realty.--Even though all or part of the price is payable
6 in an interest in realty the transfer of the goods and the
7 obligations of the seller with reference to them are subject to
8 this division, but not the transfer of the interest in realty or
9 the obligations of the transferor in connection therewith.
10 § 2305. Open price term.
11 (a) General rule.--The parties if they so intend can
12 conclude a contract for sale even though the price is not
13 settled. In such a case the price is a reasonable price at the
14 time for delivery if:
15 (1) nothing is said as to price;
16 (2) the price is left to be agreed by the parties and
17 they fail to agree; or
18 (3) the price is to be fixed in terms of some agreed
19 market or other standard as set or recorded by a third person
20 or agency and it is not so set or recorded.
21 (b) Price to be fixed by party.--A price to be fixed by the
22 seller or by the buyer means a price for him to fix in good
23 faith.
24 (c) Price not fixed through fault of party.--When a price
25 left to be fixed otherwise than by agreement of the parties
26 fails to be fixed through fault of one party the other may at
27 his option treat the contract as cancelled or himself fix a
28 reasonable price.
29 (d) Intent not to be bound without established price.--
30 Where, however, the parties intend not to be bound unless the
19790S0372B0376 - 53 -
1 price be fixed or agreed and it is not fixed or agreed there is
2 no contract. In such a case the buyer must return any goods
3 already received or if unable so to do must pay their reasonable
4 value at the time of delivery and the seller must return any
5 portion of the price paid on account.
6 § 2306. Output, requirements and exclusive dealings.
7 (a) Quantity measured by output or requirements.--A term
8 which measures the quantity by the output of the seller or the
9 requirements of the buyer means such actual output or
10 requirements as may occur in good faith, except that no quantity
11 unreasonably disproportionate to any stated estimate or in the
12 absence of a stated estimate to any normal or otherwise
13 comparable prior output or requirements may be tendered or
14 demanded.
15 (b) Obligation of parties in exclusive dealings.--A lawful
16 agreement by either the seller or the buyer for exclusive
17 dealing in the kind of goods concerned imposes unless otherwise
18 agreed an obligation by the seller to use best efforts to supply
19 the goods and by the buyer to use best efforts to promote their
20 sale.
21 § 2307. Delivery in single lot or several lots.
22 Unless otherwise agreed all goods called for by a contract
23 for sale must be tendered in a single delivery and payment is
24 due only on such tender but where the circumstances give either
25 party the right to make or demand delivery in lots the price if
26 it can be apportioned may be demanded for each lot.
27 § 2308. Absence of specified place for delivery.
28 Unless otherwise agreed:
29 (1) the place for delivery of goods is the place of
30 business of the seller or if he has none his residence; but
19790S0372B0376 - 54 -
1 (2) in a contract for sale of identified goods which to
2 the knowledge of the parties at the time of contracting are
3 in some other place, that place is the place for their
4 delivery; and
5 (3) documents of title may be delivered through
6 customary banking channels.
7 § 2309. Absence of specific time provisions; notice of
8 termination.
9 (a) Shipment, delivery or other action.--The time for
10 shipment or delivery or any other action under a contract if not
11 provided in this division or agreed upon shall be a reasonable
12 time.
13 (b) Duration of provision for successive performances.--
14 Where the contract provides for successive performances but is
15 indefinite in duration it is valid for a reasonable time but
16 unless otherwise agreed may be terminated at any time by either
17 party.
18 (c) Notice of termination.--Termination of a contract by one
19 party except on the happening of an agreed event requires that
20 reasonable notification be received by the other party and an
21 agreement dispensing with notification is invalid if its
22 operation would be unconscionable.
23 § 2310. Open time for payment or running of credit; authority
24 to ship under reservation.
25 Unless otherwise agreed:
26 (1) Payment is due at the time and place at which the
27 buyer is to receive the goods even though the place of
28 shipment is the place of delivery.
29 (2) If the seller is authorized to send the goods he may
30 ship them under reservation, and may tender the documents of
19790S0372B0376 - 55 -
1 title, but the buyer may inspect the goods after their
2 arrival before payment is due unless such inspection is
3 inconsistent with the terms of the contract (section 2513).
4 (3) If delivery is authorized and made by way of
5 documents of title otherwise than by paragraph (2) then
6 payment is due at the time and place at which the buyer is to
7 receive the documents regardless of where the goods are to be
8 received.
9 (4) Where the seller is required or authorized to ship
10 the goods on credit the credit period runs from the time of
11 shipment but post-dating the invoice or delaying its dispatch
12 will correspondingly delay the starting of the credit period.
13 § 2311. Options and cooperation respecting performance.
14 (a) Specifying particulars of performance.--An agreement for
15 sale which is otherwise sufficiently definite (section 2204(c))
16 to be a contract is not made invalid by the fact that it leaves
17 particulars of performance to be specified by one of the
18 parties. Any such specification must be made in good faith and
19 within limits set by commercial reasonableness.
20 (b) Specifying assortment of goods and shipping
21 arrangements.--Unless otherwise agreed specifications relating
22 to assortment of the goods are at the option of the buyer and
23 except as otherwise provided in section 2319(a)(3) and (c)
24 (relating to F.O.B. and F.A.S. terms) specifications or
25 arrangements relating to shipment are at the option of the
26 seller.
27 (c) Remedies for failure to specify or cooperate.--Where
28 such specification would materially affect the performance of
29 the other party but is not seasonably made or where the
30 cooperation of one party is necessary to the agreed performance
19790S0372B0376 - 56 -
1 of the other but is not seasonably forthcoming, the other party
2 in addition to all other remedies:
3 (1) is excused for any resulting delay in his own
4 performance; and
5 (2) may also either proceed to perform in any reasonable
6 manner or after the time for a material part of his own
7 performance treat the failure to specify or to cooperate as a
8 breach by failure to deliver or accept the goods.
9 § 2312. Warranty of title and against infringement; obligation
10 of buyer against infringement.
11 (a) General rule.--Subject to subsection (b) there is in a
12 contract for sale a warranty by the seller that:
13 (1) the title conveyed shall be good, and its transfer
14 rightful; and
15 (2) the goods shall be delivered free from any security
16 interest or other lien or encumbrance of which the buyer at
17 the time of contracting has no knowledge.
18 (b) Exclusion or modification of warranty.--A warranty under
19 subsection (a) will be excluded or modified only by specific
20 language or by circumstances which give the buyer reason to know
21 that the person selling does not claim title in himself or that
22 he is purporting to sell only such right or title as he or a
23 third person may have.
24 (c) Warranty of merchant regularly dealing in goods.--Unless
25 otherwise agreed a seller who is a merchant regularly dealing in
26 goods of the kind warrants that the goods shall be delivered
27 free of the rightful claim of any third person by way of
28 infringement or the like but a buyer who furnishes
29 specifications to the seller must hold the seller harmless
30 against any such claim which arises out of compliance with the
19790S0372B0376 - 57 -
1 specifications.
2 § 2313. Express warranties by affirmation, promise,
3 description or sample.
4 (a) General rule.--Express warranties by the seller are
5 created as follows:
6 (1) Any affirmation of fact or promise made by the
7 seller to the buyer which relates to the goods and becomes
8 part of the basis of the bargain creates an express warranty
9 that the goods shall conform to the affirmation or promise.
10 (2) Any description of the goods which is made part of
11 the basis of the bargain creates an express warranty that the
12 goods shall conform to the description.
13 (3) Any sample or model which is made part of the basis
14 of the bargain creates an express warranty that the whole of
15 the goods shall conform to the sample or model.
16 (b) Formal words or specific intent unnecessary.--It is not
17 necessary to the creation of an express warranty that the seller
18 use formal words such as "warrant" or "guarantee" or that he
19 have a specific intention to make a warranty, but an affirmation
20 merely of the value of the goods or a statement purporting to be
21 merely the opinion of the seller or commendation of the goods
22 does not create a warranty.
23 § 2314. Implied warranty: merchantability; usage of trade.
24 (a) Sale by merchant.--Unless excluded or modified (section
25 2316), a warranty that the goods shall be merchantable is
26 implied in a contract for their sale if the seller is a merchant
27 with respect to goods of that kind. Under this section the
28 serving for value of food or drink to be consumed either on the
29 premises or elsewhere is a sale.
30 (b) Merchantability standards for goods.--Goods to be
19790S0372B0376 - 58 -
1 merchantable must be at least such as:
2 (1) pass without objection in the trade under the
3 contract description;
4 (2) in the case of fungible goods, are of fair average
5 quality within the description;
6 (3) are fit for the ordinary purposes for which such
7 goods are used;
8 (4) run, within the variations permitted by the
9 agreement, of even kind, quality and quantity within each
10 unit and among all units involved;
11 (5) are adequately contained, packaged, and labeled as
12 the agreement may require; and
13 (6) conform to the promises or affirmations of fact made
14 on the container or label if any.
15 (c) Course of dealing or usage of trade.--Unless excluded or
16 modified (section 2316) other implied warranties may arise from
17 course of dealing or usage of trade.
18 § 2315. Implied warranty: fitness for particular purpose.
19 Where the seller at the time of contracting has reason to
20 know:
21 (1) any particular purpose for which the goods are
22 required; and
23 (2) that the buyer is relying on the skill or judgment
24 of the seller to select or furnish suitable goods;
25 there is unless excluded or modified under section 2316
26 (relating to exclusion or modification of warranties) an implied
27 warranty that the goods shall be fit for such purpose.
28 § 2316. Exclusion or modification of warranties.
29 (a) Construction of words or conduct limiting warranties.--
30 Words or conduct relevant to the creation of an express warranty
19790S0372B0376 - 59 -
1 and words or conduct tending to negate or limit warranty shall
2 be construed wherever reasonable as consistent with each other;
3 but subject to the provisions of this division on parol or
4 extrinsic evidence (section 2202) negation or limitation is
5 inoperative to the extent that such construction is
6 unreasonable.
7 (b) Implied warranties of merchantability and fitness.--
8 Subject to subsection (c), to exclude or modify the implied
9 warranty of merchantability or any part of it the language must
10 mention merchantability and in case of a writing must be
11 conspicuous, and to exclude or modify any implied warranty of
12 fitness the exclusion must be by a writing and conspicuous.
13 Language to exclude all implied warranties of fitness is
14 sufficient if it states, for example, that "There are no
15 warranties which extend beyond the description on the face
16 hereof."
17 (c) Implied warranties in general.--Notwithstanding
18 subsection (b):
19 (1) Unless the circumstances indicate otherwise, all
20 implied warranties are excluded by expressions like "as is,"
21 "with all faults" or other language which in common
22 understanding calls the attention of the buyer to the
23 exclusion of warranties and makes plain that there is no
24 implied warranty.
25 (2) When the buyer before entering into the contract has
26 examined the goods or the sample or model as fully as he
27 desired or has refused to examine the goods there is no
28 implied warranty with regard to defects which an examination
29 ought in the circumstances to have revealed to him.
30 (3) An implied warranty can also be excluded or modified
19790S0372B0376 - 60 -
1 by course of dealing or course of performance or usage of
2 trade.
3 (d) Limitation of remedies for breach of warranty.--Remedies
4 for breach of warranty can be limited in accordance with the
5 provisions of this division on liquidation or limitation of
6 damages (section 2718) and on contractual modification of remedy
7 (section 2719).
8 § 2317. Cumulation and conflict of warranties express or
9 implied.
10 Warranties whether express or implied shall be construed as
11 consistent with each other and as cumulative, but if such
12 construction is unreasonable the intention of the parties shall
13 determine which warranty is dominant. In ascertaining that
14 intention the following rules apply:
15 (1) Exact or technical specifications displace an
16 inconsistent sample or model or general language of
17 description.
18 (2) A sample from an existing bulk displaces
19 inconsistent general language of description.
20 (3) Express warranties displace inconsistent implied
21 warranties other than an implied warranty of fitness for a
22 particular purpose.
23 § 2318. Third party beneficiaries of warranties express or
24 implied.
25 The warranty of a seller whether express or implied extends
26 to any natural person who is in the family or household of his
27 buyer or who is a guest in his home if it is reasonable to
28 expect that such person may use, consume or be affected by the
29 goods and who is injured in person by breach of the warranty. A
30 seller may not exclude or limit the operation of this section.
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1 § 2319. F.O.B. and F.A.S. terms.
2 (a) Definition of F.O.B.--Unless otherwise agreed the term
3 F.O.B. (which means "free on board") at a named place, even
4 though used only in connection with the stated price, is a
5 delivery term under which:
6 (1) When the term is F.O.B. the place of shipment, the
7 seller must at that place ship the goods in the manner
8 provided in this division (section 2504 (relating to shipment
9 by seller)) and bear the expense and risk of putting them
10 into the possession of the carrier.
11 (2) When the term is F.O.B. the place of destination,
12 the seller must at his own expense and risk transport the
13 goods to that place and there tender delivery of them in the
14 manner provided in this division (section 2503 (relating to
15 manner of tender of delivery by seller)).
16 (3) When under either paragraph (1) or (2) the term is
17 also F.O.B. vessel, car or other vehicle, the seller must in
18 addition at his own expense and risk load the goods on board.
19 If the term is F.O.B. vessel the buyer must name the vessel
20 and in an appropriate case the seller must comply with the
21 provisions of this division on the form of bill of lading
22 (section 2323).
23 (b) Definition of F.A.S.--Unless otherwise agreed the term
24 F.A.S. vessel (which means "free alongside") at a named port,
25 even though used only in connection with the stated price, is a
26 delivery term under which the seller must:
27 (1) at his own expense and risk deliver the goods
28 alongside the vessel in the manner usual in that port or on a
29 dock designated and provided by the buyer; and
30 (2) obtain and tender a receipt for the goods in
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1 exchange for which the carrier is under a duty to issue a
2 bill of lading.
3 (c) Duty of buyer to give instructions.--Unless otherwise
4 agreed in any case falling within subsection (a)(1) or (3) or
5 subsection (b) the buyer must seasonably give any needed
6 instructions for making delivery, including when the term is
7 F.A.S. or F.O.B. the loading berth of the vessel and in an
8 appropriate case its name and sailing date. The seller may treat
9 the failure of needed instructions as a failure of cooperation
10 under this division (section 2311 (relating to options and
11 cooperation respecting performance)). He may also at his option
12 move the goods in any reasonable manner preparatory to delivery
13 or shipment.
14 (d) Tender of documents and payment.--Under the term F.O.B.
15 vessel or F.A.S. unless otherwise agreed the buyer must make
16 payment against tender of the required documents and the seller
17 may not tender nor the buyer demand delivery of the goods in
18 substitution for the documents.
19 § 2320. C.I.F. and C. & F. terms.
20 (a) Definitions.--The term C.I.F. means that the price
21 includes in a lump sum the cost of the goods and the insurance
22 and freight to the named destination. The term C. & F. or C.F.
23 means that the price so includes cost and freight to the named
24 destination.
25 (b) Effect of C.I.F. destination term.--Unless otherwise
26 agreed and even though used only in connection with the stated
27 price and destination, the term C.I.F. destination or its
28 equivalent requires the seller at his own expense and risk to do
29 the following:
30 (1) Put the goods into the possession of a carrier at
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1 the port for shipment and obtain a negotiable bill or bills
2 of lading covering the entire transportation to the named
3 destination.
4 (2) Load the goods and obtain a receipt from the carrier
5 (which may be contained in the bill of lading) showing that
6 the freight has been paid or provided for.
7 (3) Obtain a policy or certificate of insurance,
8 including any war risk insurance, of a kind and on terms then
9 current at the port of shipment in the usual amount, in the
10 currency of the contract, shown to cover the same goods
11 covered by the bill of lading and providing for payment of
12 loss to the order of the buyer or for the account of whom it
13 may concern; but the seller may add to the price the amount
14 of the premium for any such war risk insurance.
15 (4) Prepare an invoice of the goods and procure any
16 other documents required to effect shipment or to comply with
17 the contract.
18 (5) Forward and tender with commercial promptness all
19 the documents in due form and with any indorsement necessary
20 to perfect the rights of the buyer.
21 (c) Effect of C. & F. term.--Unless otherwise agreed the
22 term C. & F. or its equivalent has the same effect and imposes
23 upon the seller the same obligations and risks as a C.I.F. term
24 except the obligation as to insurance.
25 (d) Tender of documents and payment.--Under the term C.I.F.
26 or C. & F. unless otherwise agreed the buyer must make payment
27 against tender of the required documents and the seller may not
28 tender nor the buyer demand delivery of the goods in
29 substitution for the documents.
30 § 2321. C.I.F. or C. & F.: "net landed weights"; "payment on
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1 arrival"; warranty of condition on arrival.
2 Under a contract containing a term C.I.F. or C. & F.:
3 (1) Where the price is based on or is to be adjusted
4 according to "net landed weights," "delivered weights," "out
5 turn" quantity or quality or the like, unless otherwise
6 agreed the seller must reasonably estimate the price. The
7 payment due on tender of the documents called for by the
8 contract is the amount so estimated, but after final
9 adjustment of the price a settlement must be made with
10 commercial promptness.
11 (2) An agreement described in paragraph (1) or any
12 warranty of quality or condition of the goods on arrival
13 places upon the seller the risk of ordinary deterioration,
14 shrinkage and the like in transportation but has no effect on
15 the place or time of identification to the contract for sale
16 or delivery or on the passing of the risk of loss.
17 (3) Unless otherwise agreed where the contract provides
18 for payment on or after arrival of the goods the seller must
19 before payment allow such preliminary inspection as is
20 feasible; but if the goods are lost delivery of the documents
21 and payment are due when the goods should have arrived.
22 § 2322. Delivery "ex-ship."
23 (a) Definition.--Unless otherwise agreed a term for delivery
24 of goods "ex-ship" (which means from the carrying vessel) or in
25 equivalent language is not restricted to a particular ship and
26 requires delivery from a ship which has reached a place at the
27 named port of destination where goods of the kind are usually
28 discharged.
29 (b) Effect.--Under such a term unless otherwise agreed:
30 (1) the seller must discharge all liens arising out of
19790S0372B0376 - 65 -
1 the carriage and furnish the buyer with a direction which
2 puts the carrier under a duty to deliver the goods; and
3 (2) the risk of loss does not pass to the buyer until
4 the goods leave the tackle of the ship or are otherwise
5 properly unloaded.
6 § 2323. Form of bill of lading required in overseas shipment;
7 "overseas."
8 (a) General rule.--Where the contract contemplates overseas
9 shipment and contains a term C.I.F., C. & F. or F.O.B. vessel,
10 the seller unless otherwise agreed must obtain a negotiable bill
11 of lading stating that the goods have been loaded on board or,
12 in the case of a term C.I.F. or C. & F., received for shipment.
13 (b) Bill in set of parts.--Where in a case within subsection
14 (a) a bill of lading has been issued in a set of parts, unless
15 otherwise agreed if the documents are not to be sent from abroad
16 the buyer may demand tender of the full set; otherwise only one
17 part of the bill of lading need be tendered. Even if the
18 agreement expressly requires a full set:
19 (1) due tender of a single part is acceptable within the
20 provisions of this division on cure of improper delivery
21 (section 2508(a)); and
22 (2) even though the full set is demanded, if the
23 documents are sent from abroad the person tendering an
24 incomplete set may nevertheless require payment upon
25 furnishing an indemnity which the buyer in good faith deems
26 adequate.
27 (c) Definition of "overseas".--A shipment by water or by air
28 or a contract contemplating such shipment is "overseas" insofar
29 as by usage of trade or agreement it is subject to the
30 commercial, financing or shipping practices characteristic of
19790S0372B0376 - 66 -
1 international deep water commerce.
2 § 2324. "No arrival, no sale" term.
3 Under a term "no arrival, no sale" or terms of like meaning,
4 unless otherwise agreed:
5 (1) the seller must properly ship conforming goods and
6 if they arrive by any means he must tender them on arrival
7 but assumes no obligation that the goods will arrive unless
8 he has caused the non-arrival; and
9 (2) where without fault of the seller the goods are in
10 part lost or have so deteriorated as no longer to conform to
11 the contract or arrive after the contract time, the buyer may
12 proceed as if there had been casualty to identified goods
13 (section 2613).
14 § 2325. "Letter of credit" term; "confirmed credit."
15 (a) Failure to furnish letter.--Failure of the buyer
16 seasonably to furnish an agreed letter of credit is a breach of
17 the contract for sale.
18 (b) Effect of delivering letter.--The delivery to seller of
19 a proper letter of credit suspends the obligation of the buyer
20 to pay. If the letter of credit is dishonored, the seller may on
21 seasonable notification to the buyer require payment directly
22 from him.
23 (c) Definitions.--Unless otherwise agreed the term "letter
24 of credit" or "banker's credit" in a contract for sale means an
25 irrevocable credit issued by a financing agency of good repute
26 and, where the shipment is overseas, of good international
27 repute. The term "confirmed credit" means that the credit must
28 also carry the direct obligation of such an agency which does
29 business in the financial market of the seller.
30 § 2326. Sale on approval and sale or return; consignment sales
19790S0372B0376 - 67 -
1 and rights of creditors.
2 (a) Definitions.--Unless otherwise agreed, if delivered
3 goods may be returned by the buyer even though they conform to
4 the contract, the transaction is:
5 (1) a "sale on approval" if the goods are delivered
6 primarily for use; and
7 (2) a "sale or return" if the goods are delivered
8 primarily for resale.
9 (b) Rights of creditors of buyer generally.--Except as
10 provided in subsection (c), goods held on approval are not
11 subject to the claims of the creditors of the buyer until
12 acceptance; goods held on sale or return are subject to such
13 claims while in the possession of the buyer.
14 (c) Consignment sales.--Where goods are delivered to a
15 person for sale and such person maintains a place of business at
16 which he deals in goods of the kind involved, under a name other
17 than the name of the person making delivery, then with respect
18 to claims of creditors of the person conducting the business the
19 goods are deemed to be on sale or return. The provisions of this
20 subsection are applicable even though an agreement purports to
21 reserve title to the person making delivery until payment or
22 resale or uses such words as "on consignment" or "on
23 memorandum." However, this subsection is not applicable if the
24 person making delivery:
25 (1) complies with an applicable law providing for the
26 interest of a consignor or the like to be evidenced by a
27 sign;
28 (2) establishes that the person conducting the business
29 is generally known by his creditors to be substantially
30 engaged in selling the goods of others; or
19790S0372B0376 - 68 -
1 (3) complies with the filing provisions of Division 9
2 (relating to secured transactions).
3 (d) Treatment of "or return" term.--Any "or return" term of
4 a contract for sale is to be treated as a separate contract for
5 sale within the statute of frauds section of this division
6 (section 2201) and as contradicting the sale aspect of the
7 contract within the provisions of this division on parol or
8 extrinsic evidence (section 2202).
9 § 2327. Special incidents of sale on approval and sale or
10 return.
11 (a) Sale on approval.--Under a sale on approval unless
12 otherwise agreed:
13 (1) Although the goods are identified to the contract
14 the risk of loss and the title do not pass to the buyer until
15 acceptance.
16 (2) Use of the goods consistent with the purpose of
17 trial is not acceptance but failure seasonably to notify the
18 seller of election to return the goods is acceptance, and if
19 the goods conform to the contract acceptance of any part is
20 acceptance of the whole.
21 (3) After due notification of election to return, the
22 return is at the risk and expense of the seller but a
23 merchant buyer must follow any reasonable instructions.
24 (b) Sale or return.--Under a sale or return unless otherwise
25 agreed:
26 (1) The option to return extends to the whole or any
27 commercial unit of the goods while in substantially their
28 original condition, but must be exercised seasonably.
29 (2) The return is at the risk and expense of the buyer.
30 § 2328. Sale by auction.
19790S0372B0376 - 69 -
1 (a) Sale in lots.--In a sale by auction if goods are put up
2 in lots each lot is the subject of a separate sale.
3 (b) When sale complete.--A sale by auction is complete when
4 the auctioneer so announces by the fall of the hammer or in
5 other customary manner. Where a bid is made while the hammer is
6 falling in acceptance of a prior bid the auctioneer may in his
7 discretion reopen the bidding or declare the goods sold under
8 the bid on which the hammer was falling.
9 (c) With or without reserve.--Such a sale is with reserve
10 unless the goods are in explicit terms put up without reserve.
11 In an auction with reserve the auctioneer may withdraw the goods
12 at any time until he announces completion of the sale. In an
13 auction without reserve, after the auctioneer calls for bids on
14 an article or lot, that article or lot cannot be withdrawn
15 unless no bid is made within a reasonable time. In either case a
16 bidder may retract his bid until the announcement by the
17 auctioneer of completion of the sale, but the retraction by a
18 bidder does not revive any previous bid.
19 (d) Bidding by or for seller.--If the auctioneer knowingly
20 receives a bid on the behalf of the seller or the seller makes
21 or procures such a bid, and notice has not been given that
22 liberty for such bidding is reserved, the buyer may at his
23 option avoid the sale or take the goods at the price of the last
24 good faith bid prior to the completion of the sale. This
25 subsection shall not apply to any bid at a forced sale.
26 CHAPTER 24
27 TITLE, CREDITORS AND GOOD FAITH PURCHASERS
28 Sec.
29 2401. Passing of title; reservation for security; limited
30 application of section.
19790S0372B0376 - 70 -
1 2402. Rights of creditors of seller against sold goods.
2 2403. Power to transfer; good faith purchase of goods;
3 "entrusting."
4 § 2401. Passing of title; reservation for security; limited
5 application of section.
6 Each provision of this division with regard to the rights,
7 obligations and remedies of the seller, the buyer, purchasers or
8 other third parties applies irrespective of title to the goods
9 except where the provision refers to such title. Insofar as
10 situations are not covered by the other provisions of this
11 division and matters concerning title become material the
12 following rules apply:
13 (1) Identification of goods and reservation of title.--
14 Title to goods cannot pass under a contract for sale prior to
15 their identification to the contract (section 2501), and
16 unless otherwise explicitly agreed the buyer acquires by
17 their identification a special property as limited by this
18 title. Any retention or reservation by the seller of the
19 title (property) in goods shipped or delivered to the buyer
20 is limited in effect to a reservation of a security interest.
21 Subject to these provisions and to the provisions of Division
22 9 (relating to secured transactions), title to goods passes
23 from the seller to the buyer in any manner and on any
24 conditions explicitly agreed on by the parties.
25 (2) Place of delivery of goods.--Unless otherwise
26 explicitly agreed title passes to the buyer at the time and
27 place at which the seller completes his performance with
28 reference to the physical delivery of the goods, despite any
29 reservation of a security interest and even though a document
30 of title is to be delivered at a different time or place, and
19790S0372B0376 - 71 -
1 in particular and despite any reservation of a security
2 interest by the bill of lading:
3 (i) if the contract requires or authorizes the
4 seller to send the goods to the buyer but does not
5 require him to deliver them at destination, title passes
6 to the buyer at the time and place of shipment; but
7 (ii) if the contract requires delivery at
8 destination, title passes on tender there.
9 (3) Delivery without moving goods.--Unless otherwise
10 explicitly agreed where delivery is to be made without moving
11 the goods:
12 (i) if the seller is to deliver a document of title,
13 title passes at the time when and the place where he
14 delivers such documents; or
15 (ii) if the goods are at the time of contracting
16 already identified and no documents are to be delivered,
17 title passes at the time and place of contracting.
18 (4) Revesting of title upon rejection of goods or
19 revocation of acceptance.--A rejection or other refusal by
20 the buyer to receive or retain the goods, whether or not
21 justified, or a justified revocation of acceptance revests
22 title to the goods in the seller. Such revesting occurs by
23 operation of law and is not a "sale."
24 § 2402. Rights of creditors of seller against sold goods.
25 (a) Priority of buyer over unsecured creditors.--Except as
26 provided in subsections (b) and (c), rights of unsecured
27 creditors of the seller with respect to goods which have been
28 identified to a contract for sale are subject to the rights of
29 the buyer to recover the goods under this division (section 2502
30 (relating to right of buyer to goods on insolvency of seller)
19790S0372B0376 - 72 -
1 and section 2716 (relating to right of buyer to specific
2 performance or replevin)).
3 (b) Right to void sale upon fraudulent retention of goods.--
4 A creditor of the seller may treat a sale or an identification
5 of goods to a contract for sale as void if as against him a
6 retention of possession by the seller is fraudulent under any
7 rule of law of the state where the goods are situated, except
8 that retention of possession in good faith and current course of
9 trade by a merchant-seller for a commercially reasonable time
10 after a sale or identification is not fraudulent.
11 (c) Other rights of creditors unimpaired.--Nothing in this
12 division shall be deemed to impair the rights of creditors of
13 the seller:
14 (1) under the provisions of Division 9 (relating to
15 secured transactions); or
16 (2) where identification to the contract or delivery is
17 made not in current course of trade but in satisfaction of or
18 as security for a pre-existing claim for money, security or
19 the like and is made under circumstances which under any rule
20 of law of the state where the goods are situated would apart
21 from this division constitute the transaction a fraudulent
22 transfer or voidable preference.
23 § 2403. Power to transfer; good faith purchase of goods;
24 "entrusting."
25 (a) Transfer of title.--A purchaser of goods acquires all
26 title which his transferor had or had power to transfer except
27 that a purchaser of a limited interest acquires rights only to
28 the extent of the interest purchased. A person with voidable
29 title has power to transfer a good title to a good faith
30 purchaser for value. When goods have been delivered under a
19790S0372B0376 - 73 -
1 transaction of purchase the purchaser has such power even
2 though:
3 (1) the transferor was deceived as to the identity of
4 the purchaser;
5 (2) the delivery was in exchange for a check which is
6 later dishonored;
7 (3) it was agreed that the transaction was to be a "cash
8 sale"; or
9 (4) the delivery was procured through fraud punishable
10 as larcenous under the criminal law.
11 (b) Transfer by merchant entrusted with possession of
12 goods.--Any entrusting of possession of goods to a merchant who
13 deals in goods of that kind gives him power to transfer all
14 rights of the entruster to a buyer in ordinary course of
15 business.
16 (c) Definition of "entrusting".--"Entrusting" includes any
17 delivery and any acquiescence in retention of possession
18 regardless of any condition expressed between the parties to the
19 delivery or acquiescence and regardless of whether the
20 procurement of the entrusting or the disposition of the goods by
21 the possessor has been such as to be larcenous under the
22 criminal law.
23 (d) Rights of other purchasers and lien creditors.--The
24 rights of other purchasers of goods and of lien creditors are
25 governed by Division 6 (relating to bulk transfers), Division 7
26 (relating to documents of title) and Division 9 (relating to
27 secured transactions).
28 CHAPTER 25
29 PERFORMANCE
30 Sec.
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1 2501. Insurable interest in goods; manner of identification of
2 goods.
3 2502. Right of buyer to goods on insolvency of seller.
4 2503. Manner of tender of delivery by seller.
5 2504. Shipment by seller.
6 2505. Shipment by seller under reservation.
7 2506. Rights of financing agency.
8 2507. Effect of tender by seller; delivery on condition.
9 2508. Cure by seller of improper tender or delivery;
10 replacement.
11 2509. Risk of loss in absence of breach.
12 2510. Effect of breach on risk of loss.
13 2511. Tender of payment by buyer; payment by check.
14 2512. Payment by buyer before inspection.
15 2513. Right of buyer to inspection of goods.
16 2514. When documents deliverable on acceptance; when on
17 payment.
18 2515. Preserving evidence of goods in dispute.
19 § 2501. Insurable interest in goods; manner of identification
20 of goods.
21 (a) General rule.--The buyer obtains a special property and
22 an insurable interest in goods by identification of existing
23 goods as goods to which the contract refers even though the
24 goods so identified are nonconforming and he has an option to
25 return or reject them. Such identification can be made at any
26 time and in any manner explicitly agreed to by the parties. In
27 the absence of explicit agreement identification occurs as
28 follows:
29 (1) When the contract is made if it is for the sale of
30 goods already existing and identified.
19790S0372B0376 - 75 -
1 (2) If the contract is for the sale of future goods
2 other than those described in paragraph (3), when goods are
3 shipped, marked or otherwise designated by the seller as
4 goods to which the contract refers.
5 (3) When the crops are planted or otherwise become
6 growing crops or the young are conceived if the contract is
7 for the sale of unborn young to be born within 12 months
8 after contracting or for the sale of crops to be harvested
9 within 12 months or the next normal harvest season after
10 contracting whichever is longer.
11 (b) Duration of insurable interest and substitution of
12 goods.--The seller retains an insurable interest in goods so
13 long as title to or any security interest in the goods remains
14 in him and where the identification is by the seller alone he
15 may until default or insolvency or notification to the buyer
16 that the identification is final substitute other goods for
17 those identified.
18 (c) Other insurable interests unimpaired.--Nothing in this
19 section impairs any insurable interest recognized under any
20 other statute or rule of law.
21 § 2502. Right of buyer to goods on insolvency of seller.
22 (a) General rule.--Subject to subsection (b) and even though
23 the goods have not been shipped a buyer who has paid a part or
24 all of the price of goods in which he has a special property
25 under the provisions of section 2501 (relating to insurable
26 interest in goods; manner of identification of goods) may on
27 making and keeping good a tender of any unpaid portion of their
28 price recover them from the seller if the seller becomes
29 insolvent within ten days after receipt of the first installment
30 on their price.
19790S0372B0376 - 76 -
1 (b) Identification made by buyer.--If the identification
2 creating his special property has been made by the buyer he
3 acquires the right to recover the goods only if they conform to
4 the contract for sale.
5 § 2503. Manner of tender of delivery by seller.
6 (a) General rule.--Tender of delivery requires that the
7 seller put and hold conforming goods at the disposition of the
8 buyer and give the buyer any notification reasonably necessary
9 to enable him to take delivery. The manner, time and place for
10 tender are determined by the agreement and this division, and in
11 particular:
12 (1) tender must be at a reasonable hour, and if it is of
13 goods they must be kept available for the period reasonably
14 necessary to enable the buyer to take possession; but
15 (2) unless otherwise agreed the buyer must furnish
16 facilities reasonably suited to the receipt of the goods.
17 (b) Delivery at particular destination not required.--Where
18 the case is within section 2504 (relating to shipment by seller)
19 tender requires that the seller comply with its provisions.
20 (c) Delivery at particular destination required.--Where the
21 seller is required to deliver at a particular destination tender
22 requires that he comply with subsection (a) and also in any
23 appropriate case tender documents as described in subsections
24 (d) and (e).
25 (d) Goods in possession of bailee and deliverable without
26 being moved.--Where goods are in the possession of a bailee and
27 are to be delivered without being moved:
28 (1) tender requires that the seller either tender a
29 negotiable document of title covering such goods or procure
30 acknowledgment by the bailee of the right of the buyer to
19790S0372B0376 - 77 -
1 possession of the goods; but
2 (2) tender to the buyer of a nonnegotiable document of
3 title or of a written direction to the bailee to deliver is
4 sufficient tender unless the buyer seasonably objects, and
5 receipt by the bailee of notification of the rights of the
6 buyer fixes those rights as against the bailee and all third
7 persons; but risk of loss of the goods and of any failure by
8 the bailee to honor the nonnegotiable document of title or to
9 obey the direction remains on the seller until the buyer has
10 had a reasonable time to present the document or direction,
11 and a refusal by the bailee to honor the document or to obey
12 the direction defeats the tender.
13 (e) Form and manner of delivering documents.--Where the
14 contract requires the seller to deliver documents:
15 (1) he must tender all such documents in correct form,
16 except as provided in this division with respect to bills of
17 lading in a set (section 2323(b)); and
18 (2) tender through customary banking channels is
19 sufficient and dishonor of a draft accompanying the documents
20 constitutes nonacceptance or rejection.
21 § 2504. Shipment by seller.
22 Where the seller is required or authorized to send the goods
23 to the buyer and the contract does not require him to deliver
24 them at a particular destination then unless otherwise agreed he
25 must:
26 (1) put the goods in the possession of such a carrier
27 and make such a contract for their transportation as may be
28 reasonable having regard to the nature of the goods and other
29 circumstances of the case;
30 (2) obtain and promptly deliver or tender in due form
19790S0372B0376 - 78 -
1 any document necessary to enable the buyer to obtain
2 possession of the goods or otherwise required by the
3 agreement or by usage of trade; and
4 (3) promptly notify the buyer of the shipment.
5 Failure to notify the buyer under paragraph (3) or to make a
6 proper contract under paragraph (1) is a ground for rejection
7 only if material delay or loss ensues.
8 § 2505. Shipment by seller under reservation.
9 (a) General rule.--Where the seller has identified goods to
10 the contract by or before shipment:
11 (1) His procurement of a negotiable bill of lading to
12 his own order or otherwise reserves in him a security
13 interest in the goods. His procurement of the bill to the
14 order of a financing agency or of the buyer indicates in
15 addition only the expectation of the seller of transferring
16 that interest to the person named.
17 (2) A nonnegotiable bill of lading to himself or his
18 nominee reserves possession of the goods as security, but
19 except in a case of conditional delivery (section 2507(b)) a
20 nonnegotiable bill of lading naming the buyer as consignee
21 reserves no security interest even though the seller retains
22 possession of the bill of lading.
23 (b) Shipment in violation of contract.--When shipment by the
24 seller with reservation of a security interest is in violation
25 of the contract for sale it constitutes an improper contract for
26 transportation within section 2504 (relating to shipment by
27 seller) but impairs neither the rights given to the buyer by
28 shipment and identification of the goods to the contract nor the
29 powers of the seller as a holder of a negotiable document.
30 § 2506. Rights of financing agency.
19790S0372B0376 - 79 -
1 (a) General rule.--A financing agency by paying or
2 purchasing for value a draft which relates to a shipment of
3 goods acquires to the extent of the payment or purchase and in
4 addition to its own rights under the draft and any document of
5 title securing it any rights of the shipper in the goods
6 including the right to stop delivery and the right of the
7 shipper to have the draft honored by the buyer.
8 (b) Right to reimbursement unimpaired by latent defect.--The
9 right to reimbursement of a financing agency which has in good
10 faith honored or purchased the draft under commitment to or
11 authority from the buyer is not impaired by subsequent discovery
12 of defects with reference to any relevant document which was
13 apparently regular on its face.
14 § 2507. Effect of tender by seller; delivery on condition.
15 (a) Effect of tender by seller.--Tender of delivery is a
16 condition to the duty of the buyer to accept the goods, and
17 unless otherwise agreed, to his duty to pay for them. Tender
18 entitles the seller to acceptance of the goods and to payment
19 according to the contract.
20 (b) Delivery on condition.--Where payment is due and
21 demanded on the delivery to the buyer of goods or documents of
22 title, his right as against the seller to retain or dispose of
23 them is conditional upon his making the payment due.
24 § 2508. Cure by seller of improper tender or delivery;
25 replacement.
26 (a) General rule.--Where any tender or delivery by the
27 seller is rejected because nonconforming and the time for
28 performance has not yet expired, the seller may seasonably
29 notify the buyer of his intention to cure and may then within
30 the contract time make a conforming delivery.
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1 (b) Rejection of tender which seller believed acceptable.--
2 Where the buyer rejects a nonconforming tender which the seller
3 had reasonable grounds to believe would be acceptable with or
4 without money allowance the seller may if he seasonably notifies
5 the buyer have a further reasonable time to substitute a
6 conforming tender.
7 § 2509. Risk of loss in absence of breach.
8 (a) Seller to ship by carrier.--Where the contract requires
9 or authorizes the seller to ship the goods by carrier:
10 (1) if it does not require him to deliver them at a
11 particular destination, the risk of loss passes to the buyer
12 when the goods are duly delivered to the carrier even though
13 the shipment is under reservation (section 2505); but
14 (2) if it does require him to deliver them at a
15 particular destination and the goods are there duly tendered
16 while in the possession of the carrier, the risk of loss
17 passes to the buyer when the goods are there duly so tendered
18 as to enable the buyer to take delivery.
19 (b) Goods held by bailee.--Where the goods are held by a
20 bailee to be delivered without being moved, the risk of loss
21 passes to the buyer:
22 (1) on his receipt of a negotiable document of title
23 covering the goods;
24 (2) on acknowledgment by the bailee of the right of the
25 buyer to possession of the goods; or
26 (3) after his receipt of a nonnegotiable document of
27 title or other written direction to deliver, as provided in
28 section 2503(d)(2) (relating to manner of tender of delivery
29 by seller).
30 (c) All other cases.--In any case not within subsection (a)
19790S0372B0376 - 81 -
1 or (b), the risk of loss passes to the buyer on his receipt of
2 the goods if the seller is a merchant; otherwise on tender of
3 delivery.
4 (d) Limitations on operation of section.--The provisions of
5 this section are subject to contrary agreement of the parties
6 and to the provisions of this division on sale on approval
7 (section 2327) and on effect of breach on risk of loss (section
8 2510).
9 § 2510. Effect of breach on risk of loss.
10 (a) Tender of nonconforming goods.--Where a tender or
11 delivery of goods so fails to conform to the contract as to give
12 a right of rejection the risk of their loss remains on the
13 seller until cure or acceptance.
14 (b) Revocation of acceptance by buyer.--Where the buyer
15 rightfully revokes acceptance he may to the extent of any
16 deficiency in his effective insurance coverage treat the risk of
17 loss as having rested on the seller from the beginning.
18 (c) Repudiation or breach by buyer.--Where the buyer as to
19 conforming goods already identified to the contract for sale
20 repudiates or is otherwise in breach before risk of their loss
21 has passed to him, the seller may to the extent of any
22 deficiency in his effective insurance coverage treat the risk of
23 loss as resting on the buyer for a commercially reasonable time.
24 § 2511. Tender of payment by buyer; payment by check.
25 (a) Tender of payment condition to delivery.--Unless
26 otherwise agreed tender of payment is a condition to the duty of
27 the seller to tender and complete any delivery.
28 (b) Manner of tender of payment.--Tender of payment is
29 sufficient when made by any means or in any manner current in
30 the ordinary course of business unless the seller demands
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1 payment in legal tender and gives any extension of time
2 reasonably necessary to procure it.
3 (c) Payment by check.--Subject to the provisions of this
4 title on the effect of an instrument on an obligation (section
5 3802), payment by check is conditional and is defeated as
6 between the parties by dishonor of the check on due presentment.
7 § 2512. Payment by buyer before inspection.
8 (a) General rule.--Where the contract requires payment
9 before inspection nonconformity of the goods does not excuse the
10 buyer from so making payment unless:
11 (1) the nonconformity appears without inspection; or
12 (2) despite tender of the required documents the
13 circumstances would justify injunction against honor under
14 the provisions of this title (section 5114 (relating to duty
15 and privilege of issuer to honor; right to reimbursement)).
16 (b) Effect of payment on rights of buyer.--Payment pursuant
17 to subsection (a) does not constitute an acceptance of goods or
18 impair the right of the buyer to inspect or any of his remedies.
19 § 2513. Right of buyer to inspection of goods.
20 (a) General rule.--Unless otherwise agreed and subject to
21 subsection (c), where goods are tendered or delivered or
22 identified to the contract for sale, the buyer has a right
23 before payment or acceptance to inspect them at any reasonable
24 place and time and in any reasonable manner. When the seller is
25 required or authorized to send the goods to the buyer, the
26 inspection may be after their arrival.
27 (b) Expenses of inspection.--Expenses of inspection must be
28 borne by the buyer but may be recovered from the seller if the
29 goods do not conform and are rejected.
30 (c) Limitation on right of inspection prior to payment.--
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1 Unless otherwise agreed and subject to the provisions of this
2 division on C.I.F. contracts (section 2321(3)), the buyer is not
3 entitled to inspect the goods before payment of the price when
4 the contract provides:
5 (1) for delivery "C.O.D." or on other like terms; or
6 (2) for payment against documents of title, except where
7 such payment is due only after the goods are to become
8 available for inspection.
9 (d) Agreement as to place and method of inspection.--A place
10 or method of inspection fixed by the parties is presumed to be
11 exclusive but unless otherwise expressly agreed it does not
12 postpone identification or shift the place for delivery or for
13 passing the risk of loss. If compliance becomes impossible,
14 inspection shall be as provided in this section unless the place
15 or method fixed was clearly intended as an indispensable
16 condition failure of which avoids the contract.
17 § 2514. When documents deliverable on acceptance; when on
18 payment.
19 Unless otherwise agreed documents against which a draft is
20 drawn are to be delivered to the drawee on acceptance of the
21 draft if it is payable more than three days after presentment;
22 otherwise only on payment.
23 § 2515. Preserving evidence of goods in dispute.
24 In furtherance of the adjustment of any claim or dispute:
25 (1) either party on reasonable notification to the other
26 and for the purpose of ascertaining the facts and preserving
27 evidence has the right to inspect, test and sample the goods
28 including such of them as may be in the possession or control
29 of the other; and
30 (2) the parties may agree to a third party inspection or
19790S0372B0376 - 84 -
1 survey to determine the conformity or condition of the goods
2 and may agree that the findings shall be binding upon them in
3 any subsequent litigation or adjustment.
4 CHAPTER 26
5 BREACH, REPUDIATION AND EXCUSE
6 Sec.
7 2601. Rights of buyer on improper delivery.
8 2602. Manner and effect of rightful rejection.
9 2603. Duties of merchant buyer as to rightfully rejected goods.
10 2604. Options of buyer as to salvage of rightfully rejected
11 goods.
12 2605. Waiver of objections of buyer by failure to particularize.
13 2606. What constitutes acceptance of goods.
14 2607. Effect of acceptance; notice of breach; burden of
15 establishing breach after acceptance; notice of claim or
16 litigation to person answerable over.
17 2608. Revocation of acceptance in whole or in part.
18 2609. Right to adequate assurance of performance.
19 2610. Anticipatory repudiation.
20 2611. Retraction of anticipatory repudiation.
21 2612. "Installment contract"; breach.
22 2613. Casualty to identified goods.
23 2614. Substituted performance.
24 2615. Excuse by failure of presupposed conditions.
25 2616. Procedure on notice claiming excuse.
26 § 2601. Rights of buyer on improper delivery.
27 Subject to the provisions of this division on breach in
28 installment contracts (section 2612) and unless otherwise agreed
29 under the sections on contractual limitations of remedy
30 (sections 2718 and 2719), if the goods or the tender of delivery
19790S0372B0376 - 85 -
1 fail in any respect to conform to the contract, the buyer may:
2 (1) reject the whole;
3 (2) accept the whole; or
4 (3) accept any commercial unit or units and reject the
5 rest.
6 § 2602. Manner and effect of rightful rejection.
7 (a) Time and notice of rejection.--Rejection of goods must
8 be within a reasonable time after their delivery or tender. It
9 is ineffective unless the buyer seasonably notifies the seller.
10 (b) Duties of buyer after rightful rejection.--Subject to
11 the provisions of sections 2603 (relating to duties of merchant
12 buyer as to rightfully rejected goods) and 2604 (relating to
13 options of buyer as to salvage of rightfully rejected goods):
14 (1) after rejection any exercise of ownership by the
15 buyer with respect to any commercial unit is wrongful as
16 against the seller; and
17 (2) if the buyer has before rejection taken physical
18 possession of goods in which he does not have a security
19 interest under the provisions of this division (section
20 2711(c) (relating to security interest of buyer in rejected
21 goods)), he is under a duty after rejection to hold them with
22 reasonable care at the disposition of the seller for a time
23 sufficient to permit the seller to remove them; but
24 (3) the buyer has no further obligations with regard to
25 goods rightfully rejected.
26 (c) Rights of seller after wrongful rejection.--The rights
27 of the seller with respect to goods wrongfully rejected are
28 governed by the provisions of this division on remedies of
29 seller in general (section 2703).
30 § 2603. Duties of merchant buyer as to rightfully rejected
19790S0372B0376 - 86 -
1 goods.
2 (a) General rule.--Subject to any security interest in the
3 buyer (section 2711(c)), when the seller has no agent or place
4 of business at the market of rejection a merchant buyer is under
5 a duty after rejection of goods in his possession or control to
6 follow any reasonable instructions received from the seller with
7 respect to the goods and in the absence of such instructions to
8 make reasonable efforts to sell them for the account of the
9 seller if they are perishable or threaten to decline in value
10 speedily. Instructions are not reasonable if on demand indemnity
11 for expenses is not forthcoming.
12 (b) Reimbursement for expenses and commission.--When the
13 buyer sells goods under subsection (a), he is entitled to
14 reimbursement from the seller or out of the proceeds for
15 reasonable expenses of caring for and selling them, and if the
16 expenses include no selling commission then to such commission
17 as is usual in the trade or if there is none to a reasonable sum
18 not exceeding 10% on the gross proceeds.
19 (c) Good faith conduct.--In complying with this section the
20 buyer is held only to good faith and good faith conduct under
21 this section is neither acceptance nor conversion nor the basis
22 of an action for damages.
23 § 2604. Options of buyer as to salvage of rightfully rejected
24 goods.
25 Subject to the provisions on perishables in section 2603
26 (relating to duties of merchant buyer as to rightfully rejected
27 goods) if the seller gives no instructions within a reasonable
28 time after notification of rejection the buyer may store the
29 rejected goods for the account of the seller or reship them to
30 him or resell them for the account of the seller with
19790S0372B0376 - 87 -
1 reimbursement as provided in section 2603. Such action is not
2 acceptance or conversion.
3 § 2605. Waiver of objections of buyer by failure to
4 particularize.
5 (a) General rule.--The failure of the buyer to state in
6 connection with rejection a particular defect which is
7 ascertainable by reasonable inspection precludes him from
8 relying on the unstated defect to justify rejection or to
9 establish breach:
10 (1) where the seller could have cured it if stated
11 seasonably; or
12 (2) between merchants when the seller has after
13 rejection made a request in writing for a full and final
14 written statement of all defects on which the buyer proposes
15 to rely.
16 (b) Payment against defective documents.--Payment against
17 documents made without reservation of rights precludes recovery
18 of the payment for defects apparent on the face of the
19 documents.
20 § 2606. What constitutes acceptance of goods.
21 (a) General rule.--Acceptance of goods occurs when the
22 buyer:
23 (1) after a reasonable opportunity to inspect the goods
24 signifies to the seller that the goods are conforming or that
25 he will take or retain them in spite of their nonconformity;
26 (2) fails to make an effective rejection (section
27 2602(a)), but such acceptance does not occur until the buyer
28 has had a reasonable opportunity to inspect them; or
29 (3) does any act inconsistent with the ownership of the
30 seller; but if such act is wrongful as against the seller it
19790S0372B0376 - 88 -
1 is an acceptance only if ratified by him.
2 (b) Part of commercial unit.--Acceptance of a part of any
3 commercial unit is acceptance of that entire unit.
4 § 2607. Effect of acceptance; notice of breach; burden of
5 establishing breach after acceptance; notice of claim
6 or litigation to person answerable over.
7 (a) Payment for accepted goods.--The buyer must pay at the
8 contract rate for any goods accepted.
9 (b) Effect of acceptance on remedies for breach.--Acceptance
10 of goods by the buyer precludes rejection of the goods accepted
11 and if made with knowledge of a nonconformity cannot be revoked
12 because of it unless the acceptance was on the reasonable
13 assumption that the nonconformity would be seasonably cured but
14 acceptance does not of itself impair any other remedy provided
15 by this division for nonconformity.
16 (c) Notice of breach.--Where a tender has been accepted:
17 (1) the buyer must within a reasonable time after he
18 discovers or should have discovered any breach notify the
19 seller of breach or be barred from any remedy; and
20 (2) if the claim is one for infringement or the like
21 (section 2312(c)) and the buyer is sued as a result of such a
22 breach he must so notify the seller within a reasonable time
23 after he receives notice of the litigation or be barred from
24 any remedy over for liability established by the litigation.
25 (d) Burden of establishing breach.--The burden is on the
26 buyer to establish any breach with respect to the goods
27 accepted.
28 (e) Notice of litigation to person answerable over.--Where
29 the buyer is sued for breach of a warranty or other obligation
30 for which his seller is answerable over:
19790S0372B0376 - 89 -
1 (1) He may give his seller written notice of the
2 litigation. If the notice states that the seller may come in
3 and defend and that if the seller does not do so he will be
4 bound in any action against him by his buyer by any
5 determination of fact common to the two litigations, then
6 unless the seller after seasonable receipt of the notice does
7 come in and defend he is so bound.
8 (2) If the claim is one for infringement or the like
9 (section 2312(c)), the original seller may demand in writing
10 that his buyer turn over to him control of the litigation
11 including settlement or else be barred from any remedy over
12 and if he also agrees to bear all expense and to satisfy any
13 adverse judgment, then unless the buyer after seasonable
14 receipt of the demand does turn over control the buyer is so
15 barred.
16 (f) Obligation of buyer to hold seller harmless.--The
17 provisions of subsections (c), (d) and (e) apply to any
18 obligation of a buyer to hold the seller harmless against
19 infringement or the like (section 2312(c) (relating to warranty
20 of merchant regularly dealing in goods)).
21 § 2608. Revocation of acceptance in whole or in part.
22 (a) Grounds for revocation.--The buyer may revoke his
23 acceptance of a lot or commercial unit whose nonconformity
24 substantially impairs its value to him if he has accepted it:
25 (1) on the reasonable assumption that its nonconformity
26 would be cured and it has not been seasonably cured; or
27 (2) without discovery of such nonconformity if his
28 acceptance was reasonably induced either by the difficulty of
29 discovery before acceptance or by the assurances of the
30 seller.
19790S0372B0376 - 90 -
1 (b) Time and notice of revocation.--Revocation of acceptance
2 must occur within a reasonable time after the buyer discovers or
3 should have discovered the ground for it and before any
4 substantial change in condition of the goods which is not caused
5 by their own defects. It is not effective until the buyer
6 notifies the seller of it.
7 (c) Rights and duties of revoking buyer.--A buyer who so
8 revokes has the same rights and duties with regard to the goods
9 involved as if he had rejected them.
10 § 2609. Right to adequate assurance of performance.
11 (a) General rule.--A contract for sale imposes an obligation
12 on each party that the expectation of the other of receiving due
13 performance will not be impaired. When reasonable grounds for
14 insecurity arise with respect to the performance of either party
15 the other may in writing demand adequate assurance of due
16 performance and until he receives such assurance may if
17 commercially reasonable suspend any performance for which he has
18 not already received the agreed return.
19 (b) Reasonableness and adequacy between merchants.--Between
20 merchants the reasonableness of grounds for insecurity and the
21 adequacy of any assurance offered shall be determined according
22 to commercial standards.
23 (c) Effect of acceptance of improper delivery or payment.--
24 Acceptance of any improper delivery or payment does not
25 prejudice the right of the aggrieved party to demand adequate
26 assurance of future performance.
27 (d) Effect of failure to provide assurance.--After receipt
28 of a justified demand failure to provide within a reasonable
29 time not exceeding 30 days such assurance of due performance as
30 is adequate under the circumstances of the particular case is a
19790S0372B0376 - 91 -
1 repudiation of the contract.
2 § 2610. Anticipatory repudiation.
3 When either party repudiates the contract with respect to a
4 performance not yet due the loss of which will substantially
5 impair the value of the contract to the other, the aggrieved
6 party may:
7 (1) for a commercially reasonable time await performance
8 by the repudiating party; or
9 (2) resort to any remedy for breach (section 2703 or
10 2711), even though he has notified the repudiating party that
11 he would await performance by the latter and has urged
12 retraction; and
13 (3) in either case suspend his own performance or
14 proceed in accordance with the provisions of this division on
15 the right of the seller to identify goods to the contract
16 notwithstanding breach or to salvage unfinished goods
17 (section 2704).
18 § 2611. Retraction of anticipatory repudiation.
19 (a) When allowable.--Until the next performance is due by
20 the repudiating party he can retract his repudiation unless the
21 aggrieved party has since the repudiation cancelled or
22 materially changed his position or otherwise indicated that he
23 considers the repudiation final.
24 (b) Method.--Retraction may be by any method which clearly
25 indicates to the aggrieved party that the repudiating party
26 intends to perform, but must include any assurance justifiably
27 demanded under the provisions of this division (section 2609).
28 (c) Effect on contract rights.--Retraction reinstates the
29 rights of the repudiating party under the contract with due
30 excuse and allowance to the aggrieved party for any delay
19790S0372B0376 - 92 -
1 occasioned by the repudiation.
2 § 2612. "Installment contract"; breach.
3 (a) Definition of "installment contract".--An "installment
4 contract" is one which requires or authorizes the delivery of
5 goods in separate lots to be separately accepted, even though
6 the contract contains a clause "each delivery is a separate
7 contract" or its equivalent.
8 (b) Right to reject nonconforming installment.--The buyer
9 may reject any installment which is nonconforming if the
10 nonconformity substantially impairs the value of that
11 installment and cannot be cured or if the nonconformity is a
12 defect in the required documents; but if the nonconformity does
13 not fall within subsection (c) and the seller gives adequate
14 assurance of its cure the buyer must accept that installment.
15 (c) Breach.--Whenever nonconformity or default with respect
16 to one or more installments substantially impairs the value of
17 the whole contract there is a breach of the whole. But the
18 aggrieved party reinstates the contract if he accepts a
19 nonconforming installment without seasonably notifying of
20 cancellation or if he brings an action with respect only to past
21 installments or demands performance as to future installments.
22 § 2613. Casualty to identified goods.
23 Where the contract requires for its performance goods
24 identified when the contract is made and the goods suffer
25 casualty without fault of either party before the risk of loss
26 passes to the buyer, or in a proper case under a "no arrival, no
27 sale" term (section 2324) then:
28 (1) if the loss is total the contract is avoided; and
29 (2) if the loss is partial or the goods have so
30 deteriorated as no longer to conform to the contract the
19790S0372B0376 - 93 -
1 buyer may nevertheless demand inspection and at his option
2 either treat the contract as avoided, or accept the goods
3 with due allowance from the contract price for the
4 deterioration or the deficiency in quantity but without
5 further right against the seller.
6 § 2614. Substituted performance.
7 (a) Manner of delivery.--Where without fault of either party
8 the agreed berthing, loading, or unloading facilities fail or an
9 agreed type of carrier becomes unavailable or the agreed manner
10 of delivery otherwise becomes commercially impracticable but a
11 commercially reasonable substitute is available, such substitute
12 performance must be tendered and accepted.
13 (b) Manner of payment.--If the agreed means or manner of
14 payment fails because of domestic or foreign governmental
15 regulation, the seller may withhold or stop delivery unless the
16 buyer provides a means or manner of payment which is
17 commercially a substantial equivalent. If delivery has already
18 been taken, payment by the means or in the manner provided by
19 the regulation discharges the obligation of the buyer unless the
20 regulation is discriminatory, oppressive or predatory.
21 § 2615. Excuse by failure of presupposed conditions.
22 Except so far as a seller may have assumed a greater
23 obligation and subject to section 2614 (relating to substituted
24 performance):
25 (1) Delay in delivery or non-delivery in whole or in
26 part by a seller who complies with paragraphs (2) and (3) is
27 not a breach of his duty under a contract for sale if
28 performance as agreed has been made impracticable by the
29 occurrence of a contingency the non-occurrence of which was a
30 basic assumption on which the contract was made or by
19790S0372B0376 - 94 -
1 compliance in good faith with any applicable foreign or
2 domestic governmental regulation or order whether or not it
3 later proves to be invalid.
4 (2) Where the causes mentioned in paragraph (1) affect
5 only a part of the capacity of the seller to perform, he must
6 allocate production and deliveries among his customers, but
7 may at his option include regular customers not then under
8 contract as well as his own requirements for further
9 manufacture. He may so allocate in any manner which is fair
10 and reasonable.
11 (3) The seller must notify the buyer seasonably that
12 there will be delay or nondelivery and, when allocation is
13 required under paragraph (2), of the estimated quota thus
14 made available for the buyer.
15 § 2616. Procedure on notice claiming excuse.
16 (a) Right of buyer to terminate or modify contract.--Where
17 the buyer receives notification of a material or indefinite
18 delay or an allocation justified under section 2615 (relating to
19 excuse by failure of presupposed conditions) he may by written
20 notification to the seller as to any delivery concerned, and
21 where the prospective deficiency substantially impairs the value
22 of the whole contract under the provisions of this division
23 relating to breach of installment contracts (section 2612), then
24 also as to the whole:
25 (1) terminate and thereby discharge any unexecuted
26 portion of the contract; or
27 (2) modify the contract by agreeing to take his
28 available quota in substitution.
29 (b) Time limitation on modification.--If after receipt of
30 such notification from the seller the buyer fails so to modify
19790S0372B0376 - 95 -
1 the contract within a reasonable time not exceeding 30 days the
2 contract lapses with respect to any deliveries affected.
3 (c) Effect of agreement on section.--The provisions of this
4 section may not be negated by agreement except insofar as the
5 seller has assumed a greater obligation under section 2615.
6 CHAPTER 27
7 REMEDIES
8 Sec.
9 2701. Remedies for breach of collateral contracts not impaired.
10 2702. Remedies of seller on discovery of insolvency of buyer.
11 2703. Remedies of seller in general.
12 2704. Right of seller to identify goods to contract
13 notwithstanding breach or to salvage unfinished goods.
14 2705. Stoppage by seller of delivery in transit or otherwise.
15 2706. Resale by seller including contract for resale.
16 2707. "Person in the position of a seller."
17 2708. Damages of seller for nonacceptance or repudiation.
18 2709. Action for the price.
19 2710. Incidental damages of seller.
20 2711. Remedies of buyer in general; security interest of buyer
21 in rejected goods.
22 2712. "Cover"; procurement by buyer of substitute goods.
23 2713. Damages of buyer for nondelivery or repudiation.
24 2714. Damages of buyer for breach in regard to accepted goods.
25 2715. Incidental and consequential damages of buyer.
26 2716. Right of buyer to specific performance or replevin.
27 2717. Deduction of damages from price.
28 2718. Liquidation or limitation of damages; deposits.
29 2719. Contractual modification or limitation of remedy.
30 2720. Effect of "cancellation" or "rescission" on claims for
19790S0372B0376 - 96 -
1 antecedent breach.
2 2721. Remedies for fraud.
3 2722. Who can sue third parties for injury to goods.
4 2723. Proof of market price: time and place.
5 2724. Admissibility of market quotations.
6 2725. Statute of limitations in contracts for sale.
7 § 2701. Remedies for breach of collateral contracts not
8 impaired.
9 Remedies for breach of any obligation or promise collateral
10 or ancillary to a contract for sale are not impaired by the
11 provisions of this division.
12 § 2702. Remedies of seller on discovery of insolvency of buyer.
13 (a) Right to refuse or stop delivery.--Where the seller
14 discovers the buyer to be insolvent he may refuse delivery
15 except for cash including payment for all goods theretofore
16 delivered under the contract and stop delivery under this
17 division (section 2705).
18 (b) Reclamation of goods on credit.--Where the seller
19 discovers that the buyer has received goods on credit while
20 insolvent he may reclaim the goods upon demand made within ten
21 days after the receipt, but if misrepresentation of solvency has
22 been made to the particular seller in writing within three
23 months before delivery the ten-day limitation does not apply.
24 Except as provided in this subsection the seller may not base a
25 right to reclaim goods on the buyer's fraudulent or innocent
26 misrepresentation of solvency or of intent to pay.
27 (c) Limitations on right of reclamation.--The right of the
28 seller to reclaim under subsection (b) is subject to the rights
29 of a buyer in ordinary course or other good faith purchaser or
30 lien creditor under this division (section 2403). Successful
19790S0372B0376 - 97 -
1 reclamation of goods excludes all other remedies with respect to
2 them.
3 § 2703. Remedies of seller in general.
4 Where the buyer wrongfully rejects or revokes acceptance of
5 goods or fails to make a payment due on or before delivery or
6 repudiates with respect to a part or on the whole, then with
7 respect to any goods directly affected and, if the breach is of
8 the whole contract (section 2612), then also with respect to the
9 whole undelivered balance, the aggrieved seller may:
10 (1) Withhold delivery of such goods.
11 (2) Stop delivery by any bailee as provided in section
12 2705 (relating to stoppage by seller of delivery in transit
13 or otherwise).
14 (3) Proceed under section 2704 (relating to right of
15 seller to identify goods to contract notwithstanding breach
16 or to salvage unfinished goods).
17 (4) Resell and recover damages as hereafter provided
18 (section 2706 (relating to resale by seller including
19 contract for resale)).
20 (5) Recover damages for nonacceptance (section 2708) or
21 in a proper case the price (section 2709).
22 (6) Cancel.
23 § 2704. Right of seller to identify goods to contract
24 notwithstanding breach or to salvage unfinished goods.
25 (a) Identification and resale of goods.--An aggrieved seller
26 under section 2703 (relating to remedies of seller in general)
27 may:
28 (1) Identify to the contract conforming goods not
29 already identified if at the time he learned of the breach
30 they are in his possession or control.
19790S0372B0376 - 98 -
1 (2) Treat as the subject of resale goods which have
2 demonstrably been intended for the particular contract even
3 though those goods are unfinished.
4 (b) Unfinished goods.--Where the goods are unfinished an
5 aggrieved seller may in the exercise of reasonable commercial
6 judgment for the purposes of avoiding loss and of effective
7 realization either complete the manufacture and wholly identify
8 the goods to the contract or cease manufacture and resell for
9 scrap or salvage value or proceed in any other reasonable
10 manner.
11 § 2705. Stoppage by seller of delivery in transit or otherwise.
12 (a) General rule.--The seller may stop delivery of goods in
13 the possession of a carrier or other bailee when he discovers
14 the buyer to be insolvent (section 2702) and may stop delivery
15 of carload, truckload, planeload or larger shipments of express
16 or freight when the buyer repudiates or fails to make a payment
17 due before delivery, or if for any other reason the seller has a
18 right to withhold or reclaim the goods.
19 (b) When seller loses right.--As against such buyer the
20 seller may stop delivery until:
21 (1) receipt of the goods by the buyer;
22 (2) acknowledgment to the buyer by any bailee of the
23 goods, except a carrier, that the bailee holds the goods for
24 the buyer;
25 (3) such acknowledgment to the buyer by a carrier by
26 reshipment or as warehouseman; or
27 (4) negotiation to the buyer of any negotiable document
28 of title covering the goods.
29 (c) Notice and compliance.--
30 (1) To stop delivery the seller must so notify as to
19790S0372B0376 - 99 -
1 enable the bailee by reasonable diligence to prevent delivery
2 of the goods.
3 (2) After such notification the bailee must hold and
4 deliver the goods according to the directions of the seller
5 but the seller is liable to the bailee for any ensuing
6 charges or damages.
7 (3) If a negotiable document of title has been issued
8 for goods the bailee is not obliged to obey a notification to
9 stop until surrender of the document.
10 (4) A carrier who has issued a nonnegotiable bill of
11 lading is not obliged to obey a notification to stop received
12 from a person other than the consignor.
13 § 2706. Resale by seller including contract for resale.
14 (a) General rule.--Under the conditions stated in section
15 2703 (relating to remedies of seller in general), the seller may
16 resell the goods concerned or the undelivered balance thereof.
17 Where the resale is made in good faith and in a commercially
18 reasonable manner the seller may recover the difference between
19 the resale price and the contract price together with any
20 incidental damages allowed under the provisions of this division
21 (section 2710), but less expenses saved in consequence of the
22 breach by the buyer.
23 (b) Manner of resale.--Except as otherwise provided in
24 subsection (c) or unless otherwise agreed resale may be at
25 public or private sale including sale by way of one or more
26 contracts to sell or of identification to an existing contract
27 of the seller. Sale may be as a unit or in parcels and at any
28 time and place and on any terms but every aspect of the sale
29 including the method, manner, time, place and terms must be
30 commercially reasonable. The resale must be reasonably
19790S0372B0376 - 100 -
1 identified as referring to the broken contract, but it is not
2 necessary that the goods be in existence or that any or all of
3 them have been identified to the contract before the breach.
4 (c) Notice of private sale.--Where the resale is at private
5 sale the seller must give the buyer reasonable notification of
6 his intention to resell.
7 (d) Public sale.--Where the resale is at public sale:
8 (1) Only identified goods can be sold except where there
9 is a recognized market for a public sale of futures in goods
10 of the kind.
11 (2) It must be made at a usual place or market for
12 public sale if one is reasonably available and except in the
13 case of goods which are perishable or threaten to decline in
14 value speedily the seller must give the buyer reasonable
15 notice of the time and place of the resale.
16 (3) If the goods are not to be within the view of those
17 attending the sale the notification of sale must state the
18 place where the goods are located and provide for their
19 reasonable inspection by prospective bidders.
20 (4) The seller may buy.
21 (e) Rights of good faith purchaser.--A purchaser who buys in
22 good faith at a resale takes the goods free of any rights of the
23 original buyer even though the seller fails to comply with one
24 or more of the requirements of this section.
25 (f) Accountability for profit.--The seller is not
26 accountable to the buyer for any profit made on any resale. A
27 person in the position of a seller (section 2707), or buyer who
28 has rightfully rejected or justifiably revoked acceptance must
29 account for any excess over the amount of his security interest,
30 as defined in section 2711(c) (relating to remedies of buyer in
19790S0372B0376 - 101 -
1 general; security interest of buyer in rejected goods).
2 § 2707. "Person in the position of a seller."
3 (a) Definition.--A "person in the position of a seller"
4 includes:
5 (1) as against a principal an agent who has paid or
6 become responsible for the price of goods on behalf of his
7 principal; or
8 (2) anyone who otherwise holds a security interest or
9 other right in goods similar to that of a seller.
10 (b) Rights.--A person in the position of a seller may as
11 provided in this division:
12 (1) withhold or stop delivery (section 2705);
13 (2) resell (section 2706); and
14 (3) recover incidental damages (section 2710).
15 § 2708. Damages of seller for nonacceptance or repudiation.
16 (a) General rule.--Subject to subsection (b) and to the
17 provisions of this division with respect to proof of market
18 price (section 2723), the measure of damages for nonacceptance
19 or repudiation by the buyer is the difference between the market
20 price at the time and place for tender and the unpaid contract
21 price together with any incidental damages provided in this
22 division (section 2710) but less expenses saved in consequence
23 of the breach by the buyer.
24 (b) Exception.--If the measure of damages provided in
25 subsection (a) is inadequate to put the seller in as good a
26 position as performance would have done then the measure of
27 damages is the profit (including reasonable overhead) which the
28 seller would have made from full performance by the buyer,
29 together with any incidental damages provided in this division
30 (section 2710), due allowance for costs reasonably incurred, and
19790S0372B0376 - 102 -
1 due credit for payments or proceeds of resale.
2 § 2709. Action for the price.
3 (a) When allowable.--When the buyer fails to pay the price
4 as it becomes due the seller may recover, together with any
5 incidental damages under section 2710 (relating to incidental
6 damages of seller), the price of:
7 (1) goods accepted or conforming goods lost or damaged
8 within a commercially reasonable time after risk of their
9 loss has passed to the buyer; and
10 (2) goods identified to the contract if the seller is
11 unable after reasonable effort to resell them at a reasonable
12 price or the circumstances reasonably indicate that such
13 effort will be unavailing.
14 (b) Duties of seller.--Where the seller sues for the price
15 he must hold for the buyer any goods which have been identified
16 to the contract and are still in his control except that if
17 resale becomes possible he may resell them at any time prior to
18 the collection of the judgment. The net proceeds of any resale
19 must be credited to the buyer and payment of the judgment
20 entitles him to any goods not resold.
21 (c) Remedy if price not allowable.--After the buyer has
22 wrongfully rejected or revoked acceptance of the goods or has
23 failed to make a payment due or has repudiated (section 2610), a
24 seller who is held not entitled to the price under this section
25 shall nevertheless be awarded damages for nonacceptance under
26 section 2708 (relating to damages of seller for nonacceptance or
27 repudiation).
28 § 2710. Incidental damages of seller.
29 Incidental damages to an aggrieved seller include any
30 commercially reasonable charges, expenses or commissions
19790S0372B0376 - 103 -
1 incurred in stopping delivery, in the transportation, care and
2 custody of goods after the breach by the buyer, in connection
3 with return or resale of the goods or otherwise resulting from
4 the breach.
5 § 2711. Remedies of buyer in general; security interest of
6 buyer in rejected goods.
7 (a) Cancellation and additional remedies.--Where the seller
8 fails to make delivery or repudiates or the buyer rightfully
9 rejects or justifiably revokes acceptance then with respect to
10 any goods involved, and with respect to the whole if the breach
11 goes to the whole contract (section 2612 (relating to
12 installment contract; breach)), the buyer may cancel and whether
13 or not he has done so may in addition to recovering so much of
14 the price as has been paid:
15 (1) "cover" and have damages under section 2712
16 (relating to "cover"; procurement by buyer of substitute
17 goods) as to all the goods affected whether or not they have
18 been identified to the contract; or
19 (2) recover damages for nondelivery as provided in this
20 division (section 2713 (relating to damages of buyer for
21 nondelivery or repudiation)).
22 (b) Additional remedies for nondelivery or repudiation.--
23 Where the seller fails to deliver or repudiates the buyer may
24 also:
25 (1) if the goods have been identified recover them as
26 provided in this division (section 2502 (relating to right of
27 buyer of goods upon insolvency of seller)); or
28 (2) in a proper case obtain specific performance or
29 replevy the goods as provided in this division (section
30 2716).
19790S0372B0376 - 104 -
1 (c) Security interest of buyer in rejected goods.--On
2 rightful rejection or justifiable revocation of acceptance a
3 buyer has a security interest in goods in his possession or
4 control for any payments made on their price and any expenses
5 reasonably incurred in their inspection, receipt,
6 transportation, care and custody and may hold such goods and
7 resell them in like manner as an aggrieved seller (section
8 2706).
9 § 2712. "Cover"; procurement by buyer of substitute goods.
10 (a) Right and manner of cover.--After a breach within
11 section 2711 (relating to remedies of buyer in general; security
12 interest of buyer in rejected goods) the buyer may "cover" by
13 making in good faith and without unreasonable delay any
14 reasonable purchase of or contract to purchase goods in
15 substitution for those due from the seller.
16 (b) Damages recoverable.--The buyer may recover from the
17 seller as damages the difference between the cost of cover and
18 the contract price, together with any incidental or
19 consequential damages as defined in section 2715 (relating to
20 incidental and consequential damages of buyer) but less expenses
21 saved in consequence of the breach by the seller.
22 (c) Other remedies unaffected by failure to cover.--Failure
23 of the buyer to effect cover within this section does not bar
24 him from any other remedy.
25 § 2713. Damages of buyer for nondelivery or repudiation.
26 (a) Damages recoverable.--Subject to the provisions of this
27 division with respect to proof of market price (section 2723),
28 the measure of damages for nondelivery or repudiation by the
29 seller is the difference between the market price at the time
30 when the buyer learned of the breach and the contract price,
19790S0372B0376 - 105 -
1 together with any incidental and consequential damages provided
2 in this division (section 2715), but less expenses saved in
3 consequence of the breach by the seller.
4 (b) Determination of market price.--Market price is to be
5 determined as of the place for tender, or in cases of rejection
6 after arrival or revocation of acceptance, as of the place of
7 arrival.
8 § 2714. Damages of buyer for breach in regard to accepted
9 goods.
10 (a) Damages for nonconformity of tender.--Where the buyer
11 has accepted goods and given notification (section 2607(c)) he
12 may recover as damages for any nonconformity of tender the loss
13 resulting in the ordinary course of events from the breach of
14 the seller as determined in any manner which is reasonable.
15 (b) Measure of damages for breach of warranty.--The measure
16 of damages for breach of warranty is the difference at the time
17 and place of acceptance between the value of the goods accepted
18 and the value they would have had if they had been as warranted,
19 unless special circumstances show proximate damages of a
20 different amount.
21 (c) Incidental and consequential damages.--In a proper case
22 any incidental and consequential damages under section 2715
23 (relating to incidental and consequential damages of buyer) may
24 also be recovered.
25 § 2715. Incidental and consequential damages of buyer.
26 (a) Incidental damages.--Incidental damages resulting from
27 the breach of the seller include:
28 (1) expenses reasonably incurred in inspection, receipt,
29 transportation and care and custody of goods rightfully
30 rejected;
19790S0372B0376 - 106 -
1 (2) any commercially reasonable charges, expenses or
2 commissions in connection with effecting cover; and
3 (3) any other reasonable expense incident to the delay
4 or other breach.
5 (b) Consequential damages.--Consequential damages resulting
6 from the breach of the seller include:
7 (1) any loss resulting from general or particular
8 requirements and needs of which the seller at the time of
9 contracting had reason to know and which could not reasonably
10 be prevented by cover or otherwise; and
11 (2) injury to person or property proximately resulting
12 from any breach of warranty.
13 § 2716. Right of buyer to specific performance or replevin.
14 (a) Specific performance.--Specific performance may be
15 decreed where the goods are unique or in other proper
16 circumstances.
17 (b) Terms and conditions of decree.--The decree for specific
18 performance may include such terms and conditions as to payment
19 of the price, damages, or other relief as the court may deem
20 just.
21 (c) Replevin.--The buyer has a right of replevin for goods
22 identified to the contract if after reasonable effort he is
23 unable to effect cover for such goods or the circumstances
24 reasonably indicate that such effort will be unavailing, or if
25 the goods have been shipped under reservation and satisfaction
26 of the security interest in them has been made or tendered.
27 § 2717. Deduction of damages from price.
28 The buyer on notifying the seller of his intention to do so
29 may deduct all or any part of the damages resulting from any
30 breach of the contract from any part of the price still due
19790S0372B0376 - 107 -
1 under the same contract.
2 § 2718. Liquidation or limitation of damages; deposits.
3 (a) Liquidated damages in agreement.--Damages for breach by
4 either party may be liquidated in the agreement but only at an
5 amount which is reasonable in the light of the anticipated or
6 actual harm caused by the breach, the difficulties of proof of
7 loss, and the inconvenience or nonfeasibility of otherwise
8 obtaining an adequate remedy. A term fixing unreasonably large
9 liquidated damages is void as a penalty.
10 (b) Right of buyer to restitution.--Where the seller
11 justifiably withholds delivery of goods because of the breach of
12 the buyer, the buyer is entitled to restitution of any amount by
13 which the sum of his payments exceeds:
14 (1) the amount to which the seller is entitled by virtue
15 of terms liquidating the damages of the seller in accordance
16 with subsection (a); or
17 (2) in the absence of such terms, 20% of the value of
18 the total performance for which the buyer is obligated under
19 the contract or $500, whichever is smaller.
20 (c) Offset.--The right of the buyer to restitution under
21 subsection (b) is subject to offset to the extent that the
22 seller establishes:
23 (1) a right to recover damages under the provisions of
24 this division other than subsection (a); and
25 (2) the amount or value of any benefits received by the
26 buyer directly or indirectly by reason of the contract.
27 (d) Payment in goods.--Where a seller has received payment
28 in goods their reasonable value or the proceeds of their resale
29 shall be treated as payments for the purposes of subsection (b);
30 but if the seller has notice of the breach of the buyer before
19790S0372B0376 - 108 -
1 reselling goods received in part performance, his resale is
2 subject to the conditions laid down in this division on resale
3 by an aggrieved seller (section 2706).
4 § 2719. Contractual modification or limitation of remedy.
5 (a) General rule.--Subject to the provisions of subsections
6 (b) and (c) and of section 2718 (relating to liquidation or
7 limitation of damages; deposits):
8 (1) The agreement may provide for remedies in addition
9 to or in substitution for those provided in this division and
10 may limit or alter the measure of damages recoverable under
11 this division, as by limiting the remedies of the buyer to
12 return of the goods and repayment of the price or to repair
13 and replacement of nonconforming goods or parts.
14 (2) Resort to a remedy as provided is optional unless
15 the remedy is expressly agreed to be exclusive, in which case
16 it is the sole remedy.
17 (b) Exclusive remedy failing in purpose.--Where
18 circumstances cause an exclusive or limited remedy to fail of
19 its essential purpose, remedy may be had as provided in this
20 title.
21 (c) Limitation of consequential damages.--Consequential
22 damages may be limited or excluded unless the limitation or
23 exclusion is unconscionable. Limitation of consequential damages
24 for injury to the person in the case of consumer goods is prima
25 facie unconscionable but limitation of damages where the loss is
26 commercial is not.
27 § 2720. Effect of "cancellation" or "rescission" on claims for
28 antecedent breach.
29 Unless the contrary intention clearly appears, expressions of
30 "cancellation" or "rescission" of the contract or the like shall
19790S0372B0376 - 109 -
1 not be construed as a renunciation or discharge of any claim in
2 damages for an antecedent breach.
3 § 2721. Remedies for fraud.
4 Remedies for material misrepresentation or fraud include all
5 remedies available under this division for nonfraudulent breach.
6 Neither rescission or a claim for rescission of the contract for
7 sale nor rejection or return of the goods shall bar or be deemed
8 inconsistent with a claim for damages or other remedy.
9 § 2722. Who can sue third parties for injury to goods.
10 Where a third party so deals with goods which have been
11 identified to a contract for sale as to cause actionable injury
12 to a party to that contract:
13 (1) A right of action against the third party is in
14 either party to the contract for sale who has title to or a
15 security interest or a special property or an insurable
16 interest in the goods; and if the goods have been destroyed
17 or converted a right of action is also in the party who
18 either bore the risk of loss under the contract for sale or
19 has since the injury assumed that risk as against the other.
20 (2) If at the time of the injury the party plaintiff did
21 not bear the risk of loss as against the other party to the
22 contract for sale and there is no arrangement between them
23 for disposition of the recovery, his suit or settlement is,
24 subject to his own interest, as a fiduciary for the other
25 party to the contract.
26 (3) Either party may with the consent of the other sue
27 for the benefit of whom it may concern.
28 § 2723. Proof of market price: time and place.
29 (a) Determination of market price generally.--If an action
30 based on anticipatory repudiation comes to trial before the time
19790S0372B0376 - 110 -
1 for performance with respect to some or all of the goods, any
2 damages based on market price (section 2708 or 2713) shall be
3 determined according to the price of such goods prevailing at
4 the time when the aggrieved party learned of the repudiation.
5 (b) Other evidence available.--If evidence of a price
6 prevailing at the times or places described in this division is
7 not readily available the price prevailing within any reasonable
8 time before or after the time described or at any other place
9 which in commercial judgment or under usage of trade would serve
10 as a reasonable substitute for the one described, may be used,
11 making any proper allowance for the cost of transporting the
12 goods to or from such other place.
13 (c) Admissibility of other relevant evidence.--Evidence of a
14 relevant price prevailing at a time or place other than the one
15 described in this division offered by one party is not
16 admissible unless and until he has given the other party such
17 notice as the court finds sufficient to prevent unfair surprise.
18 § 2724. Admissibility of market quotations.
19 Whenever the prevailing price or value of any goods regularly
20 bought and sold in any established commodity market is in issue,
21 reports in official publications or trade journals or newspapers
22 or periodicals of general circulation published as the reports
23 of such market shall be admissible in evidence. The
24 circumstances of the preparation of such a report may be shown
25 to affect its weight but not its admissibility.
26 § 2725. Statute of limitations in contracts for sale.
27 (a) General rule.--An action for breach of any contract for
28 sale must be commenced within four years after the cause of
29 action has accrued. By the original agreement the parties may
30 reduce the period of limitation to not less than one year but
19790S0372B0376 - 111 -
1 may not extend it.
2 (b) Accrual of cause of action.--A cause of action accrues
3 when the breach occurs, regardless of the aggrieved party's lack
4 of knowledge of the breach. A breach of warranty occurs when
5 tender of delivery is made, except that where a warranty
6 explicitly extends to future performance of the goods and
7 discovery of the breach must await the time of such performance
8 the cause of action accrues when the breach is or should have
9 been discovered.
10 (c) New action after termination of another.--Where an
11 action commenced within the time limited by subsection (a) is so
12 terminated as to leave available a remedy by another action for
13 the same breach such other action may be commenced after the
14 expiration of the time limited and within six months after the
15 termination of the first action unless the termination resulted
16 from voluntary discontinuance or from dismissal for failure or
17 neglect to prosecute.
18 (d) Laws and actions unaffected by section.--This section
19 does not alter the law on tolling of the statute of limitations
20 nor does it apply to causes of action which have accrued before
21 this title becomes effective.
22 DIVISION 3
23 COMMERCIAL PAPER
24 Chapter
25 31. Short Title, Form and Interpretation
26 32. Transfer and Negotiation
27 33. Rights of a Holder
28 34. Liability of Parties
29 35. Presentment, Notice of Dishonor and Protest
30 36. Discharge
19790S0372B0376 - 112 -
1 37. Advice of International Sight Draft
2 38. Miscellaneous
3 CHAPTER 31
4 SHORT TITLE, FORM AND INTERPRETATION
5 Sec.
6 3101. Short title of division.
7 3102. Definitions and index of definitions.
8 3103. Limitations on scope of division.
9 3104. Form of negotiable instruments; "draft"; "check";
10 "certificate of deposit"; "note."
11 3105. When promise or order unconditional.
12 3106. Sum certain.
13 3107. Money.
14 3108. Payable on demand.
15 3109. Definite time.
16 3110. Payable to order.
17 3111. Payable to bearer.
18 3112. Terms and omissions not affecting negotiability.
19 3113. Seal.
20 3114. Date, antedating, postdating.
21 3115. Incomplete instruments.
22 3116. Instruments payable to two or more persons.
23 3117. Instruments payable with words of description.
24 3118. Ambiguous terms and rules of construction.
25 3119. Other writings affecting instrument.
26 3120. Instruments "payable through" bank.
27 3121. Instruments payable at bank.
28 3122. Accrual of cause of action.
29 § 3101. Short title of division.
30 This division shall be known and may be cited as the "Uniform
19790S0372B0376 - 113 -
1 Commercial Code--Commercial Paper."
2 § 3102. Definitions and index of definitions.
3 (a) Definitions.--The following words and phrases when used
4 in this division shall have, unless the context clearly
5 indicates otherwise, the meanings given to them in this
6 subsection:
7 "Instrument." A negotiable instrument.
8 "Issue." The first delivery of an instrument to a holder or
9 a remitter.
10 "Order." A direction to pay. It must be more than an
11 authorization or request. It must identify the person to pay
12 with reasonable certainty. It may be addressed to one or more
13 such persons jointly or in the alternative but not in
14 succession.
15 "Promise." An undertaking to pay. It must be more than an
16 acknowledgment of an obligation.
17 "Secondary party." A drawer or indorser.
18 (b) Index of other definitions in division.--Other
19 definitions applying to this division and the sections in which
20 they appear are:
21 "Acceptance." Section 3410.
22 "Accommodation party." Section 3415.
23 "Alteration." Section 3407.
24 "Certificate of deposit." Section 3104.
25 "Certification." Section 3411.
26 "Check." Section 3104.
27 "Definite time." Section 3109.
28 "Dishonor." Section 3507.
29 "Draft." Section 3104.
30 "Holder in due course." Section 3302.
19790S0372B0376 - 114 -
1 "Negotiation." Section 3202.
2 "Note." Section 3104.
3 "Notice of dishonor." Section 3508.
4 "On demand." Section 3108.
5 "Presentment." Section 3504.
6 "Protest." Section 3509.
7 "Restrictive indorsement." Section 3205.
8 "Signature." Section 3401.
9 (c) Index of definitions in other divisions.--The following
10 definitions in other divisions of this title apply to this
11 division:
12 "Account." Section 4104.
13 "Banking day." Section 4104.
14 "Clearing house." Section 4104.
15 "Collecting bank." Section 4105.
16 "Customer." Section 4104.
17 "Depositary bank." Section 4105.
18 "Documentary draft." Section 4104.
19 "Intermediary bank." Section 4105.
20 "Item." Section 4104.
21 "Midnight deadline." Section 4104.
22 "Payor bank." Section 4105.
23 (d) Applicability of general definitions and principles.--In
24 addition Division 1 (relating to general provisions) contains
25 general definitions and principles of construction and
26 interpretation applicable throughout this division.
27 § 3103. Limitations on scope of division.
28 (a) Inapplicability of provisions.--This division does not
29 apply to money, documents of title or investment securities.
30 (b) Applicability of provisions.--The provisions of this
19790S0372B0376 - 115 -
1 division are subject to the provisions of Division 4 (relating
2 to bank deposits and collections) and Division 9 (relating to
3 secured transactions).
4 § 3104. Form of negotiable instruments; "draft"; "check";
5 "certificate of deposit"; "note."
6 (a) Requisites to negotiability.--Any writing to be a
7 negotiable instrument within this division must:
8 (1) be signed by the maker or drawer;
9 (2) contain an unconditional promise or order to pay a
10 sum certain in money and no other promise, order, obligation
11 or power given by the maker or drawer except as authorized by
12 this division;
13 (3) be payable on demand or at a definite time; and
14 (4) be payable to order or to bearer.
15 (b) Types of negotiable instruments.--A writing which
16 complies with the requirements of this section is:
17 (1) A "draft" ("bill of exchange") if it is an order.
18 (2) A "check" if it is a draft drawn on a bank and
19 payable on demand.
20 (3) A "certificate of deposit" if it is an
21 acknowledgment by a bank of receipt of money with an
22 engagement to repay it.
23 (4) A "note" if it is a promise other than a certificate
24 of deposit.
25 (c) Applicability of terms to nonnegotiable instruments.--As
26 used in other divisions of this title, and as the context may
27 require, the terms "draft," "check," "certificate of deposit"
28 and "note" may refer to instruments which are not negotiable
29 within this division as well as to instruments which are so
30 negotiable.
19790S0372B0376 - 116 -
1 § 3105. When promise or order unconditional.
2 (a) Unconditional promise or order.--A promise or order
3 otherwise unconditional is not made conditional by the fact that
4 the instrument:
5 (1) is subject to implied or constructive conditions;
6 (2) states its consideration, whether performed or
7 promised, or the transaction which gave rise to the
8 instrument, or that the promise or order is made or the
9 instrument matures in accordance with or "as per" such
10 transaction;
11 (3) refers to or states that it arises out of a separate
12 agreement or refers to a separate agreement for rights as to
13 prepayment or acceleration;
14 (4) states that it is drawn under a letter of credit;
15 (5) states that it is secured, whether by mortgage,
16 reservation of title or otherwise;
17 (6) indicates a particular account to be debited or any
18 other fund or source from which reimbursement is expected;
19 (7) is limited to payment out of a particular fund or
20 the proceeds of a particular source, if the instrument is
21 issued by a government or governmental agency or unit; or
22 (8) is limited to payment out of the entire assets of a
23 partnership, unincorporated association, trust or estate by
24 or on behalf of which the instrument is issued.
25 (b) Conditional promise or order.--A promise or order is not
26 unconditional if the instrument:
27 (1) states that it is subject to or governed by any
28 other agreement; or
29 (2) states that it is to be paid only out of a
30 particular fund or source except as provided in this section.
19790S0372B0376 - 117 -
1 § 3106. Sum certain.
2 (a) General rule.--The sum payable is a sum certain even
3 though it is to be paid:
4 (1) with stated interest or by stated installments;
5 (2) with stated different rates of interest before and
6 after default or a specified date;
7 (3) with a stated discount or addition if paid before or
8 after the date fixed for payment;
9 (4) with exchange or less exchange, whether at a fixed
10 rate or at the current rate; or
11 (5) with costs of collection or an attorney's fee or
12 both upon default.
13 (b) Illegal terms not validated by section.--Nothing in this
14 section shall validate any term which is otherwise illegal.
15 § 3107. Money.
16 (a) General rule.--An instrument is payable in money if the
17 medium of exchange in which it is payable is money at the time
18 the instrument is made. An instrument payable in "currency" or
19 "current funds" is payable in money.
20 (b) Sum stated in foreign currency.--A promise or order to
21 pay a sum stated in a foreign currency is for a sum certain in
22 money and, unless a different medium of payment is specified in
23 the instrument, may be satisfied by payment of that number of
24 dollars which the stated foreign currency will purchase at the
25 buying sight rate for that currency on the day on which the
26 instrument is payable or, if payable on demand, on the day of
27 demand. If such an instrument specifies a foreign currency as
28 the medium of payment the instrument is payable in that
29 currency.
30 § 3108. Payable on demand.
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1 Instruments payable on demand include those payable at sight
2 or on presentation and those in which no time for payment is
3 stated.
4 § 3109. Definite time.
5 (a) General rule.--An instrument is payable at a definite
6 time if by its terms it is payable:
7 (1) on or before a stated date or at a fixed period
8 after a stated date;
9 (2) at a fixed period after sight;
10 (3) at a definite time subject to any acceleration; or
11 (4) at a definite time subject to extension at the
12 option of the holder, or to extension to a further definite
13 time at the option of the maker or acceptor or automatically
14 upon or after a specified act or event.
15 (b) Indefinite time.--An instrument which by its terms is
16 otherwise payable only upon an act or event uncertain as to time
17 of occurrence is not payable at a definite time even though the
18 act or event has occurred.
19 § 3110. Payable to order.
20 (a) General rule.--An instrument is payable to order when by
21 its terms it is payable to the order or assigns of any person
22 therein specified with reasonable certainty, or to him or his
23 order, or when it is conspicuously designated on its face as
24 "exchange" or the like and names a payee. It may be payable to
25 the order of:
26 (1) the maker or drawer;
27 (2) the drawee;
28 (3) a payee who is not maker, drawer or drawee;
29 (4) two or more payees together or in the alternative;
30 (5) an estate, trust or fund, in which case it is
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1 payable to the order of the representative of such estate,
2 trust or fund or his successors;
3 (6) an office, or an officer by his title as such in
4 which case it is payable to the principal but the incumbent
5 of the office or his successors may act as if he or they were
6 the holder; or
7 (7) a partnership or unincorporated association, in
8 which case it is payable to the partnership or association
9 and may be indorsed or transferred by any person thereto
10 authorized.
11 (b) Instrument payable upon return.--An instrument not
12 payable to order is not made so payable by such words as
13 "payable upon return of this instrument properly indorsed."
14 (c) Instrument payable both to order and bearer.--An
15 instrument made payable both to order and to bearer is payable
16 to order unless the bearer words are handwritten or typewritten.
17 § 3111. Payable to bearer.
18 An instrument is payable to bearer when by its terms it is
19 payable to:
20 (1) bearer or the order of bearer;
21 (2) a specified person or bearer; or
22 (3) "cash" or the order of "cash," or any other
23 indication which does not purport to designate a specific
24 payee.
25 § 3112. Terms and omissions not affecting negotiability.
26 (a) General rule.--The negotiability of an instrument is not
27 affected by:
28 (1) the omission of a statement of any consideration or
29 of the place where the instrument is drawn or payable;
30 (2) a statement that collateral has been given to secure
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1 obligations either on the instrument or otherwise of an
2 obligor on the instrument or that in the case of default on
3 those obligations the holder may realize on or dispose of the
4 collateral;
5 (3) a promise or power to maintain or protect collateral
6 or to give additional collateral;
7 (4) a term authorizing a confession of judgment on the
8 instrument if it is not paid when due;
9 (5) a term purporting to waive the benefit of any law
10 intended for the advantage or protection of any obligor;
11 (6) a term in a draft providing that the payee by
12 indorsing or cashing it acknowledges full satisfaction of an
13 obligation of the drawer; or
14 (7) a statement in a draft drawn in a set of parts
15 (section 3801) to the effect that the order is effective only
16 if no other part has been honored.
17 (b) Illegal terms not validated by section.--Nothing in this
18 section shall validate any term which is otherwise illegal.
19 § 3113. Seal.
20 An instrument otherwise negotiable is within this division
21 even though it is under a seal.
22 § 3114. Date, antedating, postdating.
23 (a) Effect on negotiability.--The negotiability of an
24 instrument is not affected by the fact that it is undated,
25 antedated or postdated.
26 (b) Time when antedated or postdated instrument payable.--
27 Where an instrument is antedated or postdated the time when it
28 is payable is determined by the stated date if the instrument is
29 payable on demand or at a fixed period after date.
30 (c) Presumption of correctness of date.--Where the
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1 instrument or any signature thereon is dated, the date is
2 presumed to be correct.
3 § 3115. Incomplete instruments.
4 (a) General rule.--When a paper whose contents at the time
5 of signing show that it is intended to become an instrument is
6 signed while still incomplete in any necessary respect it cannot
7 be enforced until completed, but when it is completed in
8 accordance with authority given it is effective as completed.
9 (b) Unauthorized completion.--If the completion is
10 unauthorized the rules as to material alteration apply (section
11 3407), even though the paper was not delivered by the maker or
12 drawer; but the burden of establishing that any completion is
13 unauthorized is on the party so asserting.
14 § 3116. Instruments payable to two or more persons.
15 An instrument payable to the order of two or more persons:
16 (1) if in the alternative is payable to any one of them
17 and may be negotiated, discharged or enforced by any of them
18 who has possession of it; or
19 (2) if not in the alternative is payable to all of them
20 and may be negotiated, discharged or enforced only by all of
21 them.
22 § 3117. Instruments payable with words of description.
23 An instrument made payable to a named person with the
24 addition of words describing him:
25 (1) as agent or officer of a specified person is payable
26 to his principal but the agent or officer may act as if he
27 were the holder;
28 (2) as any other fiduciary for a specified person or
29 purpose is payable to the payee and may be negotiated,
30 discharged or enforced by him; or
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1 (3) in any other manner is payable to the payee
2 unconditionally and the additional words are without effect
3 on subsequent parties.
4 § 3118. Ambiguous terms and rules of construction.
5 The following rules apply to every instrument:
6 (1) Where there is doubt whether the instrument is a
7 draft or a note the holder may treat it as either. A draft
8 drawn on the drawer is effective as a note.
9 (2) Handwritten terms control typewritten and printed
10 terms, and typewritten control printed.
11 (3) Words control figures except that if the words are
12 ambiguous figures control.
13 (4) Unless otherwise specified a provision for interest
14 means interest at the judgment rate at the place of payment
15 from the date of the instrument, or if it is undated from the
16 date of issue.
17 (5) Unless the instrument otherwise specifies two or
18 more persons who sign as maker, acceptor or drawer or
19 indorser and as a part of the same transaction are jointly
20 and severally liable even though the instrument contains such
21 words as "I promise to pay."
22 (6) Unless otherwise specified consent to extension
23 authorizes a single extension for not longer than the
24 original period. A consent to extension, expressed in the
25 instrument, is binding on secondary parties and accommodation
26 makers. A holder may not exercise his option to extend an
27 instrument over the objection of a maker or acceptor or other
28 party who in accordance with section 3604 (relating to tender
29 of payment) tenders full payment when the instrument is due.
30 § 3119. Other writings affecting instrument.
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1 (a) General rule.--As between the obligor and his immediate
2 obligee or any transferee the terms of an instrument may be
3 modified or affected by any other written agreement executed as
4 a part of the same transaction, except that a holder in due
5 course is not affected by any limitation of his rights arising
6 out of the separate written agreement if he had no notice of the
7 limitation when he took the instrument.
8 (b) Negotiability unaffected by separate agreement.--A
9 separate agreement does not affect the negotiability of an
10 instrument.
11 § 3120. Instruments "payable through" bank.
12 An instrument which states that it is "payable through" a
13 bank or the like designates that bank as a collecting bank to
14 make presentment but does not of itself authorize the bank to
15 pay the instrument.
16 § 3121. Instruments payable at bank.
17 A note or acceptance which states that it is payable at a
18 bank is the equivalent of a draft drawn on the bank payable when
19 it falls due out of any funds of the maker or acceptor in
20 current account or otherwise available for such payment.
21 § 3122. Accrual of cause of action.
22 (a) Against maker or acceptor.--A cause of action against a
23 maker or an acceptor accrues:
24 (1) in the case of a time instrument on the day after
25 maturity; and
26 (2) in the case of a demand instrument upon its date, or
27 if no date is stated, on the date of issue.
28 (b) Against obligor of certificate of deposit.--A cause of
29 action against the obligor of a demand or time certificate of
30 deposit accrues upon demand, but demand on a time certificate
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1 may not be made until on or after the date of maturity.
2 (c) Against drawer or indorser.--A cause of action against a
3 drawer of a draft or an indorser of any instrument accrues upon
4 demand following dishonor of the instrument. Notice of dishonor
5 is a demand.
6 (d) When interest begins to run.--Unless an instrument
7 provides otherwise, interest runs at the rate provided by law
8 for a judgment:
9 (1) in the case of a maker, acceptor or other primary
10 obligor of a demand instrument, from the date of demand; and
11 (2) in all other cases from the date of accrual of the
12 cause of action.
13 CHAPTER 32
14 TRANSFER AND NEGOTIATION
15 Sec.
16 3201. Transfer: right to indorsement.
17 3202. Negotiation.
18 3203. Wrong or misspelled name.
19 3204. Special indorsement; blank indorsement.
20 3205. Restrictive indorsements.
21 3206. Effect of restrictive indorsement.
22 3207. Negotiation effective although it may be rescinded.
23 3208. Reacquisition.
24 § 3201. Transfer: right to indorsement.
25 (a) Rights obtained upon transfer of instrument.--Transfer
26 of an instrument vests in the transferee such rights as the
27 transferor has therein, except that a transferee who has himself
28 been a party to any fraud or illegality affecting the instrument
29 or who as a prior holder had notice of a defense or claim
30 against it cannot improve his position by taking from a later
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1 holder in due course.
2 (b) Transfer of security interest in instrument.--A transfer
3 of a security interest in an instrument vests the foregoing
4 rights in the transferee to the extent of the interest
5 transferred.
6 (c) Right of transferee to demand indorsement.--Unless
7 otherwise agreed any transfer for value of an instrument not
8 then payable to bearer gives the transferee the specifically
9 enforceable right to have the unqualified indorsement of the
10 transferor. Negotiation takes effect only when the indorsement
11 is made and until that time there is no presumption that the
12 transferee is the owner.
13 § 3202. Negotiation.
14 (a) Effect and manner of negotiation.--Negotiation is the
15 transfer of an instrument in such form that the transferee
16 becomes a holder. If the instrument is payable to order it is
17 negotiated by delivery with any necessary indorsement; if
18 payable to bearer it is negotiated by delivery.
19 (b) Requisites to valid indorsement.--An indorsement must be
20 written by or on behalf of the holder and on the instrument or
21 on a paper so firmly affixed thereto as to become a part
22 thereof.
23 (c) Scope of indorsement.--An indorsement is effective for
24 negotiation only when it conveys the entire instrument or any
25 unpaid residue. If it purports to be of less it operates only as
26 a partial assignment.
27 (d) Effect on indorsement of additional words.--Words of
28 assignment, condition, waiver, guaranty, limitation or
29 disclaimer of liability and the like accompanying an indorsement
30 do not affect its character as an indorsement.
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1 § 3203. Wrong or misspelled name.
2 Where an instrument is made payable to a person under a
3 misspelled name or one other than his own he may indorse in that
4 name or his own or both; but signature in both names may be
5 required by a person paying or giving value for the instrument.
6 § 3204. Special indorsement; blank indorsement.
7 (a) Special indorsement.--A special indorsement specifies
8 the person to whom or to whose order it makes the instrument
9 payable. Any instrument specially indorsed becomes payable to
10 the order of the special indorsee and may be further negotiated
11 only by his indorsement.
12 (b) Blank indorsement.--An indorsement in blank specifies no
13 particular indorsee and may consist of a mere signature. An
14 instrument payable to order and indorsed in blank becomes
15 payable to bearer and may be negotiated by delivery alone until
16 specially indorsed.
17 (c) Conversion of blank endorsement into special
18 indorsement.--The holder may convert a blank indorsement into a
19 special indorsement by writing over the signature of the
20 indorser in blank any contract consistent with the character of
21 the indorsement.
22 § 3205. Restrictive indorsements.
23 An indorsement is restrictive which either:
24 (1) is conditional;
25 (2) purports to prohibit further transfer of the
26 instrument;
27 (3) includes the words "for collection," "for deposit,"
28 "pay any bank," or like terms signifying a purpose of deposit
29 or collection; or
30 (4) otherwise states that it is for the benefit or use
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1 of the indorser or of another person.
2 § 3206. Effect of restrictive indorsement.
3 (a) Further transfer or negotiation unaffected.--No
4 restrictive indorsement prevents further transfer or negotiation
5 of the instrument.
6 (b) Effect on banks.--An intermediary bank, or a payor bank
7 which is not the depositary bank, is neither given notice nor
8 otherwise affected by a restrictive indorsement of any person
9 except the immediate transferor of the bank or the person
10 presenting for payment.
11 (c) Conditional or specified purpose indorsement.--Except
12 for an intermediary bank, any transferee under an indorsement
13 which is conditional or includes the words "for collection,"
14 "for deposit," "pay any bank," or like terms (section 3205(1)
15 and (3) (relating to restrictive indorsements)) must pay or
16 apply any value given by him for or on the security of the
17 instrument consistently with the indorsement and to the extent
18 that he does so he becomes a holder for value. In addition such
19 transferee is a holder in due course if he otherwise complies
20 with the requirements of section 3302 (relating to holder in due
21 course).
22 (d) Indorsement for benefit of indorser or another person.--
23 The first taker under an indorsement for the benefit of the
24 indorser or another person (section 3205(4))must pay or apply
25 any value given by him for or on the security of the instrument
26 consistently with the indorsement and to the extent that he does
27 so be becomes a holder for value. In addition such taker is a
28 holder in due course if he otherwise complies with the
29 requirements of section 3302. A later holder for value is
30 neither given notice nor otherwise affected by such restrictive
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1 indorsement unless he has knowledge that a fiduciary or other
2 person has negotiated the instrument in any transaction for his
3 own benefit or otherwise in breach of duty (section 3304(b)
4 (relating to notice to purchaser)).
5 § 3207. Negotiation effective although it may be rescinded.
6 (a) General rule.--Negotiation is effective to transfer the
7 instrument although the negotiation is:
8 (1) made by an infant, a corporation exceeding its
9 powers, or any other person without capacity;
10 (2) obtained by fraud, duress or mistake of any kind;
11 (3) part of an illegal transaction; or
12 (4) made in breach of duty.
13 (b) Remedies.--Except as against a subsequent holder in due
14 course such negotiation is in an appropriate case subject to
15 rescission, the declaration of a constructive trust or any other
16 remedy permitted by law.
17 § 3208. Reacquisition.
18 Where an instrument is returned to or reacquired by a prior
19 party he may cancel any indorsement which is not necessary to
20 his title and reissue or further negotiate the instrument, but
21 any intervening party is discharged as against the reacquiring
22 party and subsequent holders not in due course and if his
23 indorsement has been cancelled is discharged as against
24 subsequent holders in due course as well.
25 CHAPTER 33
26 RIGHTS OF A HOLDER
27 Sec.
28 3301. Rights of a holder.
29 3302. Holder in due course.
30 3303. Taking for value.
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1 3304. Notice to purchaser.
2 3305. Rights of holder in due course.
3 3306. Rights of one not holder in due course.
4 3307. Burden of establishing signatures, defenses and due
5 course.
6 § 3301. Rights of a holder.
7 The holder of an instrument whether or not he is the owner
8 may transfer or negotiate it and, except as otherwise provided
9 in section 3603 (relating to payment or satisfaction), discharge
10 it or enforce payment in his own name.
11 § 3302. Holder in due course.
12 (a) General rule.--A holder in due course is a holder who
13 takes the instrument:
14 (1) for value;
15 (2) in good faith; and
16 (3) without notice that it is overdue or has been
17 dishonored or of any defense against or claim to it on the
18 part of any person.
19 (b) Payee as holder in due course.--A payee may be a holder
20 in due course.
21 (c) Transactions not conferring holder in due course
22 status.--A holder does not become a holder in due course of an
23 instrument:
24 (1) by purchase of it at judicial sale or by taking it
25 under legal process;
26 (2) by acquiring it in taking over an estate; or
27 (3) by purchasing it as part of a bulk transaction not
28 in regular course of business of the transferor.
29 (d) Purchaser of limited interest as holder in due course.--
30 A purchaser of a limited interest can be a holder in due course
19790S0372B0376 - 130 -
1 only to the extent of the interest purchased.
2 § 3303. Taking for value.
3 A holder takes the instrument for value:
4 (1) to the extent that the agreed consideration has been
5 performed or that he acquires a security interest in or a
6 lien on the instrument otherwise than by legal process;
7 (2) when he takes the instrument in payment of or as
8 security for an antecedent claim against any person whether
9 or not the claim is due; or
10 (3) when he gives a negotiable instrument for it or
11 makes an irrevocable commitment to a third person.
12 § 3304. Notice to purchaser.
13 (a) Notice of claim or defense.--The purchaser has notice of
14 a claim or defense if:
15 (1) the instrument is so incomplete, bears such visible
16 evidence of forgery or alteration, or is otherwise so
17 irregular as to call into question its validity, terms or
18 ownership or to create an ambiguity as to the party to pay;
19 or
20 (2) the purchaser has notice that the obligation of any
21 party is voidable in whole or in part, or that all parties
22 have been discharged.
23 (b) Knowledge of breach of duty by fiduciary.--The purchaser
24 has notice of a claim against the instrument when he has
25 knowledge that a fiduciary has negotiated the instrument in
26 payment of or as security for his own debt or in any transaction
27 for his own benefit or otherwise in breach of duty.
28 (c) Notice that instrument is overdue.--The purchaser has
29 notice that an instrument is overdue if he has reason to know:
30 (1) that any part of the principal amount is overdue or
19790S0372B0376 - 131 -
1 that there is an uncured default in payment of another
2 instrument of the same series;
3 (2) that acceleration of the instrument has been made;
4 or
5 (3) that he is taking a demand instrument after demand
6 has been made or more than a reasonable length of time after
7 its issue. A reasonable time for a check drawn and payable
8 within the states and territories of the United States and
9 the District of Columbia is presumed to be 30 days.
10 (d) Facts which do not constitute notice.--Knowledge of the
11 following facts does not of itself give the purchaser notice of
12 a defense or claim:
13 (1) That the instrument is antedated or postdated.
14 (2) That the instrument was issued or negotiated in
15 return for an executory promise or accompanied by a separate
16 agreement, unless the purchaser has notice that a defense or
17 claim has arisen from the terms thereof.
18 (3) That any party has signed for accommodation.
19 (4) That an incomplete instrument has been completed,
20 unless the purchaser has notice of any improper completion.
21 (5) That any person negotiating the instrument is or was
22 a fiduciary.
23 (6) That there has been default in payment of interest
24 on the instrument or in payment of any other instrument,
25 except one of the same series.
26 (e) Filing or recording as notice.--The filing or recording
27 of a document does not of itself constitute notice within the
28 provisions of this division to a person who would otherwise be a
29 holder in due course.
30 (f) Timeliness of notice.--To be effective notice must be
19790S0372B0376 - 132 -
1 received at such time and in such manner as to give a reasonable
2 opportunity to act on it.
3 § 3305. Rights of holder in due course.
4 To the extent that a holder is a holder in due course he
5 takes the instrument free from:
6 (1) all claims to it on the part of any person; and
7 (2) all defenses of any party to the instrument with
8 whom the holder has not dealt except:
9 (i) infancy, to the extent that it is a defense to a
10 simple contract;
11 (ii) such other incapacity, or duress, or illegality
12 of the transaction, as renders the obligation of the
13 party a nullity;
14 (iii) such misrepresentation as has induced the
15 party to sign the instrument with neither knowledge nor
16 reasonable opportunity to obtain knowledge of its
17 character or its essential terms;
18 (iv) discharge in insolvency proceedings; and
19 (v) any other discharge of which the holder has
20 notice when he takes the instrument.
21 § 3306. Rights of one not holder in due course.
22 Unless he has the rights of a holder in due course any person
23 takes the instrument subject to:
24 (1) all valid claims to it on the part of any person;
25 (2) all defenses of any party which would be available
26 in an action on a simple contract;
27 (3) the defenses of want or failure of consideration,
28 nonperformance of any condition precedent, nondelivery, or
29 delivery for a special purpose (section 3408 (relating to
30 consideration)); and
19790S0372B0376 - 133 -
1 (4) the defense that he or a person through whom he
2 holds the instrument acquired it by theft, or that payment or
3 satisfaction to such holder would be inconsistent with the
4 terms of a restrictive indorsement. The claim of any third
5 person to the instrument is not otherwise available as a
6 defense to any party liable thereon unless the third person
7 himself defends the action for such party.
8 § 3307. Burden of establishing signatures, defenses and due
9 course.
10 (a) Proof of effectiveness of signature.--Unless
11 specifically denied in the pleadings each signature on an
12 instrument is admitted. When the effectiveness of a signature is
13 put in issue:
14 (1) the burden of establishing it is on the party
15 claiming under the signature; but
16 (2) the signature is presumed to be genuine or
17 authorized except where the action is to enforce the
18 obligation of a purported signer who has died or become
19 incompetent before proof is required.
20 (b) Recovery when signature established.--When signatures
21 are admitted or established, production of the instrument
22 entitles a holder to recover on it unless the defendant
23 establishes a defense.
24 (c) Proof of holder in due course status when defense
25 raised.--After it is shown that a defense exists a person
26 claiming the rights of a holder in due course has the burden of
27 establishing that he or some person under whom he claims is in
28 all respects a holder in due course.
29 CHAPTER 34
30 LIABILITY OF PARTIES
19790S0372B0376 - 134 -
1 Sec.
2 3401. Signature.
3 3402. Signature in ambiguous capacity.
4 3403. Signature by authorized representative.
5 3404. Unauthorized signatures.
6 3405. Impostors; signature in name of payee.
7 3406. Negligence contributing to alteration or unauthorized
8 signature.
9 3407. Alteration.
10 3408. Consideration.
11 3409. Draft not an assignment.
12 3410. Definition and operation of acceptance.
13 3411. Certification of a check.
14 3412. Acceptance varying draft.
15 3413. Contract of maker, drawer and acceptor.
16 3414. Contract of indorser; order of liability.
17 3415. Contract of accommodation party.
18 3416. Contract of guarantor.
19 3417. Warranties on presentment and transfer.
20 3418. Finality of payment or acceptance.
21 3419. Conversion of instrument; innocent representative.
22 § 3401. Signature.
23 (a) Nonliability in absence of signature.--No person is
24 liable on an instrument unless his signature appears thereon.
25 (b) Form of signature.--A signature is made by use of any
26 name, including any trade or assumed name, upon an instrument,
27 or by any word or mark used in lieu of a written signature.
28 § 3402. Signature in ambiguous capacity.
29 Unless the instrument clearly indicates that a signature is
30 made in some other capacity it is an indorsement.
19790S0372B0376 - 135 -
1 § 3403. Signature by authorized representative.
2 (a) General rule.--A signature may be made by an agent or
3 other representative, and his authority to make it may be
4 established as in other cases of representation. No particular
5 form of appointment is necessary to establish such authority.
6 (b) When authorized representative personally obligated.--An
7 authorized representative who signs his own name to an
8 instrument:
9 (1) is personally obligated if the instrument neither
10 names the person represented nor shows that the
11 representative signed in a representative capacity; and
12 (2) except as otherwise established between the
13 immediate parties, is personally obligated if the instrument
14 names the person represented but does not show that the
15 representative signed in a representative capacity, or if the
16 instrument does not name the person represented but does show
17 that the representative signed in a representative capacity.
18 (c) Signature in representative capacity.--Except as
19 otherwise established the name of an organization preceded or
20 followed by the name and office of an authorized individual is a
21 signature made in a representative capacity.
22 § 3404. Unauthorized signatures.
23 (a) General rule.--Any unauthorized signature is wholly
24 inoperative as that of the person whose name is signed unless he
25 ratifies it or is precluded from denying it; but it operates as
26 the signature of the unauthorized signer in favor of any person
27 who in good faith pays the instrument or takes it for value.
28 (b) Ratification of unauthorized signature.--Any
29 unauthorized signature may be ratified for all purposes of this
30 division. Such ratification does not of itself affect any rights
19790S0372B0376 - 136 -
1 of the person ratifying against the actual signer.
2 § 3405. Impostors; signature in name of payee.
3 (a) General rule.--An indorsement by any person in the name
4 of a named payee is effective if:
5 (1) an impostor by use of the mails or otherwise has
6 induced the maker or drawer to issue the instrument to him or
7 his confederate in the name of the payee;
8 (2) a person signing as or on behalf of a maker or
9 drawer intends the payee to have no interest in the
10 instrument; or
11 (3) an agent or employee of the maker or drawer has
12 supplied him with the name of the payee intending the latter
13 to have no such interest.
14 (b) Criminal or civil liability of indorser unaffected.--
15 Nothing in this section shall affect the criminal or civil
16 liability of the person so indorsing.
17 § 3406. Negligence contributing to alteration or unauthorized
18 signature.
19 Any person who by his negligence substantially contributes to
20 a material alteration of the instrument or to the making of an
21 unauthorized signature is precluded from asserting the
22 alteration or lack of authority against a holder in due course
23 or against a drawee or other payor who pays the instrument in
24 good faith and in accordance with the reasonable commercial
25 standards of the business of the drawee or payor.
26 § 3407. Alteration.
27 (a) Material alteration.--Any alteration of an instrument is
28 material which changes the contract of any party thereto in any
29 respect, including any such change in:
30 (1) the number or relations of the parties;
19790S0372B0376 - 137 -
1 (2) an incomplete instrument, by completing it otherwise
2 than as authorized; or
3 (3) the writing as signed, by adding to it or by
4 removing any part of it.
5 (b) Effect of alteration.--As against any person other than
6 a subsequent holder in due course:
7 (1) Alteration by the holder which is both fraudulent
8 and material discharges any party whose contract is thereby
9 changed unless that party assents or is precluded from
10 asserting the defense.
11 (2) No other alteration discharges any party and the
12 instrument may be enforced according to its original tenor,
13 or as to incomplete instruments according to the authority
14 given.
15 (c) Enforcement of instrument by subsequent holder in due
16 course.--A subsequent holder in due course may in all cases
17 enforce the instrument according to its original tenor, and when
18 an incomplete instrument has been completed, he may enforce it
19 as completed.
20 § 3408. Consideration.
21 Want or failure of consideration is a defense as against any
22 person not having the rights of a holder in due course (section
23 3305), except that no consideration is necessary for an
24 instrument or obligation thereon given in payment of or as
25 security for an antecedent obligation of any kind. Nothing in
26 this section shall be taken to displace any statute outside this
27 title under which a promise is enforceable notwithstanding lack
28 or failure of consideration. Partial failure of consideration is
29 a defense pro tanto whether or not the failure is in an
30 ascertained or liquidated amount.
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1 § 3409. Draft not an assignment.
2 (a) General rule.--A check or other draft does not of itself
3 operate as an assignment of any funds in the hands of the drawee
4 available for its payment, and the drawee is not liable on the
5 instrument until he accepts it.
6 (b) Other liability unaffected.--Nothing in this section
7 shall affect any liability in contract, tort or otherwise
8 arising from any letter of credit or other obligation or
9 representation which is not an acceptance.
10 § 3410. Definition and operation of acceptance.
11 (a) General rule.--Acceptance is the signed engagement of
12 the drawee to honor the draft as presented. It must be written
13 on the draft, and may consist of his signature alone. It becomes
14 operative when completed by delivery or notification.
15 (b) Acceptance of incomplete, overdue or dishonored draft.--
16 A draft may be accepted although it has not been signed by the
17 drawer or is otherwise incomplete or is overdue or has been
18 dishonored.
19 (c) Failure to date acceptance of sight draft.--Where the
20 draft is payable at a fixed period after sight and the acceptor
21 fails to date his acceptance the holder may complete it by
22 supplying a date in good faith.
23 § 3411. Certification of a check.
24 (a) Certification as acceptance.--Certification of a check
25 is acceptance. Where a holder procures certification the drawer
26 and all prior indorsers are discharged.
27 (b) Obligation of bank to certify check.--Unless otherwise
28 agreed a bank has no obligation to certify a check.
29 (c) Certification before return of check for lack of
30 indorsement.--A bank may certify a check before returning it for
19790S0372B0376 - 139 -
1 lack of proper indorsement. If it does so the drawer is
2 discharged.
3 § 3412. Acceptance varying draft.
4 (a) Right of holder to refuse acceptance.--Where the
5 proffered acceptance of the drawee in any manner varies the
6 draft as presented the holder may refuse the acceptance and
7 treat the draft as dishonored in which case the drawee is
8 entitled to have his acceptance cancelled.
9 (b) Effect of acceptance designating place of payment.--The
10 terms of the draft are not varied by an acceptance to pay at any
11 particular bank or place in the United States, unless the
12 acceptance states that the draft is to be paid only at such bank
13 or place.
14 (c) Assent of holder to acceptance.--Where the holder
15 assents to an acceptance varying the terms of the draft each
16 drawer and indorser who does not affirmatively assent is
17 discharged.
18 § 3413. Contract of maker, drawer and acceptor.
19 (a) Contract of maker or acceptor.--The maker or acceptor
20 engages that he will pay the instrument according to its tenor
21 at the time of his engagement or as completed pursuant to
22 section 3115 on incomplete instruments.
23 (b) Contract of drawer.--The drawer engages that upon
24 dishonor of the draft and any necessary notice of dishonor or
25 protest he will pay the amount of the draft to the holder or to
26 any indorser who takes it up. The drawer may disclaim this
27 liability by drawing without recourse.
28 (c) Admissions by maker, drawer or acceptor.--By making,
29 drawing or accepting the party admits as against all subsequent
30 parties including the drawee the existence of the payee and his
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1 then capacity to indorse.
2 § 3414. Contract of indorser; order of liability.
3 (a) Contract of indorser.--Unless the indorsement otherwise
4 specifies (as by such words as "without recourse") every
5 indorser engages that upon dishonor and any necessary notice of
6 dishonor and protest he will pay the instrument according to its
7 tenor at the time of his indorsement to the holder or to any
8 subsequent indorser who takes it up, even though the indorser
9 who takes it up was not obligated to do so.
10 (b) Order of liability of indorsers.--Unless they otherwise
11 agree indorsers are liable to one another in the order in which
12 they indorse, which is presumed to be the order in which their
13 signatures appear on the instrument.
14 § 3415. Contract of accommodation party.
15 (a) Definition of "accommodation party".--An accommodation
16 party is one who signs the instrument in any capacity for the
17 purpose of lending his name to another party to it.
18 (b) Liability of accommodation party.--When the instrument
19 has been taken for value before it is due the accommodation
20 party is liable in the capacity in which he has signed even
21 though the taker knows of the accommodation.
22 (c) Oral proof of accommodation.--As against a holder in due
23 course and without notice of the accommodation oral proof of the
24 accommodation is not admissible to give the accommodation party
25 the benefit of discharges dependent on his character as such. In
26 other cases the accommodation character may be shown by oral
27 proof.
28 (d) Indorsement as notice of accommodation.--An indorsement
29 which shows that it is not in the chain of title is notice of
30 its accommodation character.
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1 (e) Rights between accommodation and accommodated parties.--
2 An accommodation party is not liable to the party accommodated,
3 and if he pays the instrument has a right of recourse on the
4 instrument against such party.
5 § 3416. Contract of guarantor.
6 (a) Definition of "payment guaranteed".--"Payment
7 guaranteed" or equivalent words added to a signature mean that
8 the signer engages that if the instrument is not paid when due
9 he will pay it according to its tenor without resort by the
10 holder to any other party.
11 (b) Definition of "collection guaranteed".--"Collection
12 guaranteed" or equivalent words added to a signature mean that
13 the signer engages that if the instrument is not paid when due
14 he will pay it according to its tenor, but only after the holder
15 has reduced his claim against the maker or acceptor to judgment
16 and execution has been returned unsatisfied, or after the maker
17 or acceptor has become insolvent or it is otherwise apparent
18 that it is useless to proceed against him.
19 (c) Effect of words of guaranty.--Words of guaranty which do
20 not otherwise specify guarantee payment.
21 (d) Addition of words of guaranty to signature of maker or
22 acceptor.--No words of guaranty added to the signature of a sole
23 maker or acceptor affect his liability on the instrument. Such
24 words added to the signature of one of two or more makers or
25 acceptors create a presumption that the signature is for the
26 accommodation of the others.
27 (e) Rights waived by guarantor.--When words of guaranty are
28 used presentment, notice of dishonor and protest are not
29 necessary to charge the user.
30 (f) Enforcement of guaranty written on instrument.--Any
19790S0372B0376 - 142 -
1 guaranty written on the instrument is enforceable
2 notwithstanding any statute of frauds.
3 § 3417. Warranties on presentment and transfer.
4 (a) Warranties to payor or acceptor.--Any person who obtains
5 payment or acceptance and any prior transferor warrants to a
6 person who in good faith pays or accepts that:
7 (1) he has a good title to the instrument or is
8 authorized to obtain payment or acceptance on behalf of one
9 who has a good title;
10 (2) he has no knowledge that the signature of the maker
11 or drawer is unauthorized, except that this warranty is not
12 given by a holder in due course acting in good faith:
13 (i) to a maker with respect to the maker's own
14 signature;
15 (ii) to a drawer with respect to the drawer's own
16 signature, whether or not the drawer is also the drawee;
17 or
18 (iii) to an acceptor of a draft if the holder in due
19 course took the draft after the acceptance or obtained
20 the acceptance without knowledge that the signature of
21 the drawer was unauthorized; and
22 (3) the instrument has not been materially altered,
23 except that this warranty is not given by a holder in due
24 course acting in good faith:
25 (i) to the maker of a note;
26 (ii) to the drawer of a draft whether or not the
27 drawer is also the drawee;
28 (iii) to the acceptor of a draft with respect to an
29 alteration made prior to the acceptance if the holder in
30 due course took the draft after the acceptance, even
19790S0372B0376 - 143 -
1 though the acceptance provided "payable as originally
2 drawn" or equivalent terms; or
3 (iv) to the acceptor of a draft with respect to an
4 alteration made after the acceptance.
5 (b) Warranties to transferee and subsequent holder.--Any
6 person who transfers an instrument and receives consideration
7 warrants to his transferee and if the transfer is by indorsement
8 to any subsequent holder who takes the instrument in good faith
9 that:
10 (1) he has a good title to the instrument or is
11 authorized to obtain payment or acceptance on behalf of one
12 who has a good title and the transfer is otherwise rightful;
13 (2) all signatures are genuine or authorized;
14 (3) the instrument has not been materially altered;
15 (4) no defense of any party is good against him; and
16 (5) he has no knowledge of any insolvency proceeding
17 instituted with respect to the maker or acceptor or the
18 drawer of an unaccepted instrument.
19 (c) Effect of transfer "without recourse".--By transferring
20 "without recourse" the transferor limits the obligation stated
21 in subsection (b)(4) to a warranty that he has no knowledge of
22 such a defense.
23 (d) Warranties of agent or broker.--A selling agent or
24 broker who does not disclose the fact that he is acting only as
25 such gives the warranties provided in this section, but if he
26 makes such disclosure warrants only his good faith and
27 authority.
28 § 3418. Finality of payment or acceptance.
29 Except for recovery of bank payments as provided in Division
30 4 (relating to bank deposits and collections) and except for
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1 liability for breach of warranty on presentment under section
2 3417 (relating to warranties on presentment and transfer),
3 payment or acceptance of any instrument is final in favor of a
4 holder in due course, or a person who has in good faith changed
5 his position in reliance on the payment.
6 § 3419. Conversion of instrument; innocent representative.
7 (a) Acts constituting conversion.--An instrument is
8 converted when:
9 (1) a drawee to whom it is delivered for acceptance
10 refuses to return it on demand;
11 (2) any person to whom it is delivered for payment
12 refuses on demand either to pay or to return it; or
13 (3) it is paid on a forged indorsement.
14 (b) Measure of liability.--In an action against a drawee
15 under subsection (a), the measure of the liability of the drawee
16 is the face amount of the instrument. In any other action under
17 subsection (a), the measure of liability is presumed to be the
18 face amount of the instrument.
19 (c) Limitation on liability of representative.--Subject to
20 the provisions of this title concerning restrictive indorsements
21 a representative, including a depositary or collecting bank, who
22 has in good faith and in accordance with the reasonable
23 commercial standards applicable to the business of such
24 representative dealt with an instrument or its proceeds on
25 behalf of one who was not the true owner is not liable in
26 conversion or otherwise to the true owner beyond the amount of
27 any proceeds remaining in his hands.
28 (d) Limitation on liability of intermediary or payor bank.--
29 An intermediary bank or payor bank which is not a depositary
30 bank is not liable in conversion solely by reason of the fact
19790S0372B0376 - 145 -
1 that proceeds of an item indorsed restrictively (sections 3205
2 and 3206) are not paid or applied consistently with the
3 restrictive indorsement of an indorser other than its immediate
4 transferor.
5 CHAPTER 35
6 PRESENTMENT, NOTICE OF DISHONOR
7 AND PROTEST
8 Sec.
9 3501. When presentment, notice of dishonor, and protest
10 necessary or permissible.
11 3502. Unexcused delay; discharge.
12 3503. Time of presentment.
13 3504. How presentment made.
14 3505. Rights of party to whom presentment is made.
15 3506. Time allowed for acceptance or payment.
16 3507. Dishonor; right of recourse of holder; term allowing
17 re-presentment.
18 3508. Notice of dishonor.
19 3509. Protest; noting for protest.
20 3510. Evidence of dishonor and notice of dishonor.
21 3511. Waived or excused presentment, protest or notice of
22 dishonor or delay therein.
23 § 3501. When presentment, notice of dishonor, and protest
24 necessary or permissible.
25 (a) Presentment.--Unless excused (section 3511 (relating to
26 waived or excused presentment, protest or notice of dishonor or
27 delay therein)) presentment is necessary to charge secondary
28 parties as follows:
29 (1) Presentment for acceptance is necessary to charge
30 the drawer and indorsers of a draft where the draft so
19790S0372B0376 - 146 -
1 provides, or is payable elsewhere than at the residence or
2 place of business of the drawee, or its date of payment
3 depends upon such presentment. The holder may at his option
4 present for acceptance any other draft payable at a stated
5 date.
6 (2) Presentment for payment is necessary to charge any
7 indorser.
8 (3) In the case of any drawer, the acceptor of a draft
9 payable at a bank or the maker of a note payable at a bank,
10 presentment for payment is necessary, but failure to make
11 presentment discharges such drawer, acceptor or maker only as
12 stated in section 3502(a)(2) (relating to unexcused delay;
13 discharge).
14 (b) Notice of dishonor.--Unless excused (section 3511):
15 (1) Notice of any dishonor is necessary to charge any
16 indorser.
17 (2) In the case of any drawer, the acceptor of a draft
18 payable at a bank or the maker of a note payable at a bank,
19 notice of any dishonor is necessary, but failure to give such
20 notice discharges such drawer, acceptor or maker only as
21 stated in section 3502(a)(2).
22 (c) Protest of dishonor.--Unless excused (section 3511)
23 protest of any dishonor is necessary to charge the drawer and
24 indorsers of any draft which on its face appears to be drawn or
25 payable outside of the states and territories of the United
26 States and the District of Columbia. The holder may at his
27 option make protest of any dishonor of any other instrument and
28 in the case of a foreign draft may on insolvency of the acceptor
29 before maturity make protest for better security.
30 (d) Indorsement of instrument after maturity.--
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1 Notwithstanding any provision of this section, neither
2 presentment nor notice of dishonor nor protest is necessary to
3 charge an indorser who has indorsed an instrument after
4 maturity.
5 § 3502. Unexcused delay; discharge.
6 (a) Delayed presentment or notice of dishonor.--Where
7 without excuse any necessary presentment or notice of dishonor
8 is delayed beyond the time when it is due:
9 (1) any indorser is discharged; and
10 (2) any drawer or the acceptor of a draft payable at a
11 bank or the maker of a note payable at a bank who because the
12 drawee or payor bank becomes insolvent during the delay is
13 deprived of funds maintained with the drawee or payor bank to
14 cover the instrument may discharge his liability by written
15 assignment to the holder of his rights against the drawee or
16 payor bank in respect of such funds, but such drawer,
17 acceptor or maker is not otherwise discharged.
18 (b) Delayed protest of dishonor.--Where without excuse a
19 necessary protest is delayed beyond the time when it is due any
20 drawer or indorser is discharged.
21 § 3503. Time of presentment.
22 (a) General rule.--Unless a different time is expressed in
23 the instrument the time for any presentment is determined as
24 follows:
25 (1) Where an instrument is payable at or a fixed period
26 after a stated date any presentment for acceptance must be
27 made on or before the date it is payable.
28 (2) Where an instrument is payable after sight it must
29 either be presented for acceptance or negotiated within a
30 reasonable time after date or issue whichever is later.
19790S0372B0376 - 148 -
1 (3) Where an instrument shows the date on which it is
2 payable presentment for payment is due on that date.
3 (4) Where an instrument is accelerated presentment for
4 payment is due within a reasonable time after the
5 acceleration.
6 (5) With respect to the liability of any secondary party
7 presentment for acceptance or payment of any other instrument
8 is due within a reasonable time after such party becomes
9 liable thereon.
10 (b) Determination of reasonable time for presentment.--A
11 reasonable time for presentment is determined by the nature of
12 the instrument, any usage of banking or trade and the facts of
13 the particular case. In the case of an uncertified check which
14 is drawn and payable within the United States and which is not a
15 draft drawn by a bank the following are presumed to be
16 reasonable periods within which to present for payment or to
17 initiate bank collection:
18 (1) With respect to the liability of the drawer, 30 days
19 after date or issue whichever is later.
20 (2) With respect to the liability of an indorser, seven
21 days after his indorsement.
22 (c) Presentment due on day other than full business day.--
23 Where any presentment is due on a day which is not a full
24 business day for either the person making presentment or the
25 party to pay or accept, presentment is due on the next following
26 day which is a full business day for both parties.
27 (d) Sufficiency of presentment.--Presentment to be
28 sufficient must be made at a reasonable hour, and if at a bank
29 during its banking day.
30 § 3504. How presentment made.
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1 (a) Definition of "presentment".--Presentment is a demand
2 for acceptance or payment made upon the maker, acceptor, drawee
3 or other payor by or on behalf of the holder.
4 (b) Manner of making presentment.--Presentment may be made:
5 (1) by mail, in which event the time of presentment is
6 determined by the time of receipt of the mail;
7 (2) through a clearing house; or
8 (3) at the place of acceptance or payment specified in
9 the instrument or if there be none at the place of business
10 or residence of the party to accept or pay. If neither the
11 party to accept or pay nor anyone authorized to act for him
12 is present or accessible at such place presentment is
13 excused.
14 (c) Persons to whom presentment may be made.--Presentment
15 may be made:
16 (1) to any one of two or more makers, acceptors, drawees
17 or other payors; or
18 (2) to any person who has authority to make or refuse
19 the acceptance or payment.
20 (d) Draft accepted or note made payable at bank.--A draft
21 accepted or a note made payable at a bank in the United States
22 must be presented at such bank.
23 (e) Presentment by written notice.--In the cases described
24 in section 4210 (relating to presentment by notice of item not
25 payable by, through or at a bank) presentment may be made in the
26 manner and with the result stated in that section.
27 § 3505. Rights of party to whom presentment is made.
28 (a) General rule.--The party to whom presentment is made may
29 without dishonor require:
30 (1) exhibition of the instrument;
19790S0372B0376 - 150 -
1 (2) reasonable identification of the person making
2 presentment and evidence of his authority to make it if made
3 for another;
4 (3) that the instrument be produced for acceptance or
5 payment at a place specified in it, or if there be none at
6 any place reasonable in the circumstances; and
7 (4) a signed receipt on the instrument for any partial
8 or full payment and its surrender upon full payment.
9 (b) Failure to comply with required acts.--Failure to comply
10 with any such requirement invalidates the presentment but the
11 person presenting has a reasonable time in which to comply and
12 the time for acceptance or payment runs from the time of
13 compliance.
14 § 3506. Time allowed for acceptance or payment.
15 (a) Time allowed for acceptance.--Acceptance may be deferred
16 without dishonor until the close of the next business day
17 following presentment. The holder may also in a good faith
18 effort to obtain acceptance and without either dishonor of the
19 instrument or discharge of secondary parties allow postponement
20 of acceptance for an additional business day.
21 (b) Time allowed for payment.--Except as a longer time is
22 allowed in the case of documentary drafts drawn under a letter
23 of credit, and unless an earlier time is agreed to by the party
24 to pay, payment of an instrument may be deferred without
25 dishonor pending reasonable examination to determine whether it
26 is properly payable, but payment must be made in any event
27 before the close of business on the day of presentment.
28 § 3507. Dishonor; right of recourse of holder; term allowing
29 re-presentment.
30 (a) Definition of "dishonor".--An instrument is dishonored
19790S0372B0376 - 151 -
1 when:
2 (1) a necessary or optional presentment is duly made and
3 due acceptance or payment is refused or cannot be obtained
4 within the prescribed time or in case of bank collections the
5 instrument is seasonably returned by the midnight deadline
6 (section 4301 (relating to deferred posting; recovery of
7 payment by return of items; time of dishonor)); or
8 (2) presentment is excused and the instrument is not
9 duly accepted or paid.
10 (b) Right of recourse of holder upon dishonor.--Subject to
11 any necessary notice of dishonor and protest, the holder has
12 upon dishonor an immediate right of recourse against the drawers
13 and indorsers.
14 (c) Return of improperly indorsed instrument not dishonor.--
15 Return of an instrument for lack of proper indorsement is not
16 dishonor.
17 (d) Term allowing time for re-presentment.--A term in a
18 draft or an indorsement thereof allowing a stated time for re-
19 presentment in the event of any dishonor of the draft by
20 nonacceptance if a time draft or by nonpayment if a sight draft
21 gives the holder as against any secondary party bound by the
22 term an option to waive the dishonor without affecting the
23 liability of the secondary party and he may present again up to
24 the end of the stated time.
25 § 3508. Notice of dishonor.
26 (a) Persons to whom notice may be given.--Notice of dishonor
27 may be given to any person who may be liable on the instrument
28 by or on behalf of the holder or any party who has himself
29 received notice, or any other party who can be compelled to pay
30 the instrument. In addition an agent or bank in whose hands the
19790S0372B0376 - 152 -
1 instrument is dishonored may give notice to his principal or
2 customer or to another agent or bank from which the instrument
3 was received.
4 (b) Time for giving notice.--Any necessary notice must be
5 given by a bank before its midnight deadline and by any other
6 person before midnight of the third business day after dishonor
7 or receipt of notice of dishonor.
8 (c) Manner of giving notice.--Notice may be given in any
9 reasonable manner. It may be oral or written and in any terms
10 which identify the instrument and state that it has been
11 dishonored. A misdescription which does not mislead the party
12 notified does not vitiate the notice. Sending the instrument
13 bearing a stamp, ticket or writing stating that acceptance or
14 payment has been refused or sending a notice of debit with
15 respect to the instrument is sufficient.
16 (d) Written notice is given when sent.--Written notice is
17 given when sent although it is not received.
18 (e) Notice to partner.--Notice to one partner is notice to
19 each although the firm has been dissolved.
20 (f) Notice when party in insolvency proceedings.--When any
21 party is in insolvency proceedings instituted after the issue of
22 the instrument notice may be given either to the party or to the
23 representative of his estate.
24 (g) Notice when party dead or incompetent.--When any party
25 is dead or incompetent notice may be sent to his last known
26 address or given to his personal representative.
27 (h) Persons benefiting from notice.--Notice operates for the
28 benefit of all parties who have rights on the instrument against
29 the party notified.
30 § 3509. Protest; noting for protest.
19790S0372B0376 - 153 -
1 (a) Definition of "protest".--A protest is a certificate of
2 dishonor made under the hand and seal of a United States consul
3 or vice consul or a notary public or other person authorized to
4 certify dishonor by the law of the place where dishonor occurs.
5 It may be made upon information satisfactory to such person.
6 (b) Required contents of protest.--The protest must identify
7 the instrument and certify either that due presentment has been
8 made or the reason why it is excused and that the instrument has
9 been dishonored by nonacceptance or nonpayment.
10 (c) Optional contents of protest.--The protest may also
11 certify that notice of dishonor has been given to all parties or
12 to specified parties.
13 (d) Time protest is due.--Subject to subsection (e) any
14 necessary protest is due by the time that notice of dishonor is
15 due.
16 (e) Protest of instrument noted for protest.--If, before
17 protest is due, an instrument has been noted for protest by the
18 officer to make protest, the protest may be made at any time
19 thereafter as of the date of the noting.
20 § 3510. Evidence of dishonor and notice of dishonor.
21 The following are admissible as evidence and create a
22 presumption of dishonor and of any notice of dishonor therein
23 shown:
24 (1) A document regular in form as provided in section
25 3509 (relating to protest; noting for protest) which purports
26 to be a protest.
27 (2) The purported stamp or writing of the drawee, payor
28 bank or presenting bank on the instrument or accompanying it
29 stating that acceptance or payment has been refused for
30 reasons consistent with dishonor.
19790S0372B0376 - 154 -
1 (3) Any book or record of the drawee, payor bank, or any
2 collecting bank kept in the usual course of business which
3 shows dishonor, even though there is no evidence of who made
4 the entry.
5 § 3511. Waived or excused presentment, protest or notice of
6 dishonor or delay therein.
7 (a) Excused delay in presentment, protest or notice of
8 dishonor.--Delay in presentment, protest or notice of dishonor
9 is excused when the party is without notice that it is due or
10 when the delay is caused by circumstances beyond his control and
11 he exercises reasonable diligence after the cause of the delay
12 ceases to operate.
13 (b) Excused presentment, protest or notice of dishonor.--
14 Presentment or notice or protest as the case may be is entirely
15 excused when:
16 (1) the party to be charged has waived it expressly or
17 by implication either before or after it is due;
18 (2) such party has himself dishonored the instrument or
19 has countermanded payment or otherwise has no reason to
20 expect or right to require that the instrument be accepted or
21 paid; or
22 (3) by reasonable diligence the presentment or protest
23 cannot be made or the notice given.
24 (c) Excused presentment.--Presentment is also entirely
25 excused when:
26 (1) the maker, acceptor or drawee of any instrument
27 except a documentary draft is dead or in insolvency
28 proceedings instituted after the issue of the instrument; or
29 (2) acceptance or payment is refused but not for want of
30 proper presentment.
19790S0372B0376 - 155 -
1 (d) Excuse where draft dishonored by nonacceptance.--Where a
2 draft has been dishonored by nonacceptance a later presentment
3 for payment and any notice of dishonor and protest for
4 nonpayment are excused unless in the meantime the instrument has
5 been accepted.
6 (e) Waiver of protest waives presentment and notice of
7 dishonor.--A waiver of protest is also a waiver of presentment
8 and of notice of dishonor even though protest is not required.
9 (f) Effect of location of waiver on instrument.--Where a
10 waiver of presentment or notice or protest is embodied in the
11 instrument itself it is binding upon all parties; but where it
12 is written above the signature of an indorser it binds him only.
13 CHAPTER 36
14 DISCHARGE
15 Sec.
16 3601. Discharge of parties.
17 3602. Effect of discharge against holder in due course.
18 3603. Payment or satisfaction.
19 3604. Tender of payment.
20 3605. Cancellation and renunciation.
21 3606. Impairment of recourse or of collateral.
22 § 3601. Discharge of parties.
23 (a) Applicability of other provisions.--The extent of the
24 discharge of any party from liability on an instrument is
25 governed by the following sections:
26 Section 3208 (relating to reacquisition).
27 Section 3407 (relating to alteration).
28 Section 3411 (relating to certification of a check).
29 Section 3412 (relating to acceptance varying draft).
30 Section 3502 (relating to unexcused delay; discharge).
19790S0372B0376 - 156 -
1 Section 3603 (relating to payment or satisfaction).
2 Section 3604 (relating to tender of payment).
3 Section 3605 (relating to cancellation or renunciation).
4 Section 3606 (relating to impairment of recourse or of
5 collateral).
6 (b) Discharge by other action or agreement.--Any party is
7 also discharged from his liability on an instrument to another
8 party by any other act or agreement with such party which would
9 discharge his simple contract for the payment of money.
10 (c) Reacquisition by prior party.--The liability of all
11 parties is discharged when any party who has himself no right of
12 action or recourse on the instrument:
13 (1) reacquires the instrument in his own right; or
14 (2) is discharged under any provision of this division,
15 except as otherwise provided with respect to discharge for
16 impairment of recourse or of collateral (section 3606).
17 § 3602. Effect of discharge against holder in due course.
18 No discharge of any party provided by this division is
19 effective against a subsequent holder in due course unless he
20 has notice thereof when he takes the instrument.
21 § 3603. Payment or satisfaction.
22 (a) General rule.--The liability of any party is discharged
23 to the extent of his payment or satisfaction to the holder even
24 though it is made with knowledge of a claim of another person to
25 the instrument unless prior to such payment or satisfaction the
26 person making the claim either supplies indemnity deemed
27 adequate by the party seeking the discharge or enjoins payment
28 or satisfaction by order of a court of competent jurisdiction in
29 an action in which the adverse claimant and the holder are
30 parties. This subsection does not, however, result in the
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1 discharge of the liability:
2 (1) of a party who in bad faith pays or satisfies a
3 holder who acquired the instrument by theft or who (unless
4 having the rights of a holder in due course) holds through
5 one who so acquired it; or
6 (2) of a party (other than an intermediary bank or a
7 payor bank which is not a depositary bank), who pays or
8 satisfies the holder of an instrument which has been
9 restrictively indorsed in a manner not consistent with the
10 terms of such restrictive indorsement.
11 (b) Persons making payment or satisfaction with consent of
12 holder.--Payment or satisfaction may be made with the consent of
13 the holder by any person including a stranger to the instrument.
14 Surrender of the instrument to such a person gives him the
15 rights of a transferee (section 3201 (relating to transfer:
16 right to indorsement)).
17 § 3604. Tender of payment.
18 (a) General rule.--Any party making tender of full payment
19 to a holder when or after it is due is discharged to the extent
20 of all subsequent liability for interest, costs and attorney's
21 fees.
22 (b) Effect of refusal of tender.--The holder's refusal of
23 such tender wholly discharges any party who has a right of
24 recourse against the party making the tender.
25 (c) Actions equivalent to tender.--Where the maker or
26 acceptor of an instrument payable otherwise than on demand is
27 able and ready to pay at every place of payment specified in the
28 instrument when it is due, it is equivalent to tender.
29 § 3605. Cancellation and renunciation.
30 (a) General rule.--The holder of an instrument may even
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1 without consideration discharge any party:
2 (1) in any manner apparent on the face of the instrument
3 or the indorsement, as by intentionally cancelling the
4 instrument or the signature of the party by destruction or
5 mutilation, or by striking out the signature of the party; or
6 (2) by renouncing his rights by a writing signed and
7 delivered or by surrender of the instrument to the party to
8 be discharged.
9 (b) Title unaffected of instrument not surrendered.--Neither
10 cancellation nor renunciation without surrender of the
11 instrument affects the title thereto.
12 § 3606. Impairment of recourse or of collateral.
13 (a) General rule.--The holder discharges any party to the
14 instrument to the extent that without the consent of such party
15 the holder:
16 (1) without express reservation of rights releases or
17 agrees not to sue any person against whom the party has to
18 the knowledge of the holder a right of recourse or agrees to
19 suspend the right to enforce against such person the
20 instrument or collateral or otherwise discharges such person,
21 except that failure or delay in effecting any required
22 presentment, protest or notice of dishonor with respect to
23 any such person does not discharge any party as to whom
24 presentment, protest or notice of dishonor is effective or
25 unnecessary; or
26 (2) unjustifiably impairs any collateral for the
27 instrument given by or on behalf of the party or any person
28 against whom he has a right of recourse.
29 (b) Express reservation of rights by holder.--By express
30 reservation of rights against a party with a right of recourse
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1 the holder preserves:
2 (1) all his rights against such party as of the time
3 when the instrument was originally due;
4 (2) the right of the party to pay the instrument as of
5 that time; and
6 (3) all rights of such party to recourse against others.
7 CHAPTER 37
8 ADVICE OF INTERNATIONAL SIGHT DRAFT
9 Sec.
10 3701 Letter of advice of international sight draft.
11 § 3701. Letter of advice of international sight draft.
12 (a) Definition of "letter of advice".--A "letter of advice"
13 is a communication by a drawer to the drawee that a described
14 draft has been drawn.
15 (b) Authority of drawee bank receiving letter of advice.--
16 Unless otherwise agreed when a bank receives from another bank a
17 letter of advice of an international sight draft the drawee bank
18 may immediately debit the account of the drawer and stop the
19 running of interest pro tanto. Such a debit and any resulting
20 credit to any account covering outstanding drafts leaves in the
21 drawer full power to stop payment or otherwise dispose of the
22 amount and creates no trust or interest in favor of the holder.
23 (c) Payment of unadvised draft.--Unless otherwise agreed and
24 except where a draft is drawn under a credit issued by the
25 drawee, the drawee of an international sight draft owes the
26 drawer no duty to pay an unadvised draft but if it does so and
27 the draft is genuine, may appropriately debit the account of the
28 drawer.
29 CHAPTER 38
30 MISCELLANEOUS
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1 3801. Drafts in a set.
2 3802. Effect of instrument on obligation for which it is
3 given.
4 3803. Notice to third party.
5 3804. Lost, destroyed or stolen instruments.
6 3805. Instruments not payable to order or to bearer.
7 § 3801. Drafts in a set.
8 (a) Whole of parts constitutes one draft.--Where a draft is
9 drawn in a set of parts, each of which is numbered and expressed
10 to be an order only if no other part has been honored, the whole
11 of the parts constitutes one draft but a taker of any part may
12 become a holder in due course of the draft.
13 (b) Liability of person negotiating, indorsing or accepting
14 single part.--Any person who negotiates, indorses or accepts a
15 single part of a draft drawn in a set thereby becomes liable to
16 any holder in due course of that part as if it were the whole
17 set, but as between different holders in due course to whom
18 different parts have been negotiated the holder whose title
19 first accrues has all rights to the draft and its proceeds.
20 (c) Effect of payment of parts.--As against the drawee the
21 first presented part of a draft drawn in a set is the part
22 entitled to payment, or if a time draft to acceptance and
23 payment. Acceptance of any subsequently presented part renders
24 the drawee liable thereon under subsection (b). With respect
25 both to a holder and to the drawer payment of a subsequently
26 presented part of a draft payable at sight has the same effect
27 as payment of a check notwithstanding an effective stop order
28 (section 4407 (relating to right of payor bank to subrogation on
29 improper payment)).
30 (d) Effect of discharge of parts.--Except as otherwise
19790S0372B0376 - 161 -
1 provided in this section, where any part of a draft in a set is
2 discharged by payment or otherwise the whole draft is
3 discharged.
4 § 3802. Effect of instrument on obligation for which it is
5 given.
6 (a) General rule.--Unless otherwise agreed where an
7 instrument is taken for an underlying obligation:
8 (1) the obligation is pro tanto discharged if a bank is
9 drawer, maker or acceptor of the instrument and there is no
10 recourse on the instrument against the underlying obligor;
11 and
12 (2) in any other case the obligation is suspended pro
13 tanto until the instrument is due or if it is payable on
14 demand until its presentment. If the instrument is dishonored
15 action may be maintained on either the instrument or the
16 obligation; discharge of the underlying obligor on the
17 instrument also discharges him on the obligation.
18 (b) Effect of taking check which is not postdated.--The
19 taking in good faith of a check which is not postdated does not
20 of itself so extend the time on the original obligation as to
21 discharge a surety.
22 § 3803. Notice to third party.
23 Where a defendant is sued for breach of an obligation for
24 which a third person is answerable over under this division he
25 may give the third person written notice of the litigation, and
26 the person notified may then give similar notice to any other
27 person who is answerable over to him under this division. If the
28 notice states that the person notified may come in and defend
29 and that if the person notified does not do so he will in any
30 action against him by the person giving the notice be bound by
19790S0372B0376 - 162 -
1 any determination of fact common to the two litigations, then
2 unless after seasonable receipt of the notice the person
3 notified does come in and defend he is so bound.
4 § 3804. Lost, destroyed or stolen instruments.
5 The owner of an instrument which is lost, whether by
6 destruction, theft or otherwise, may maintain an action in his
7 own name and recover from any party liable thereon upon due
8 proof of his ownership, the facts which prevent his production
9 of the instrument and its terms. The court may require security
10 indemnifying the defendant against loss by reason of further
11 claims on the instrument.
12 § 3805. Instruments not payable to order or to bearer.
13 This division applies to any instrument whose terms do not
14 preclude transfer and which is otherwise negotiable within this
15 division but which is not payable to order or to bearer, except
16 that there can be no holder in due course of such an instrument.
17 DIVISION 4
18 BANK DEPOSITS AND COLLECTIONS
19 Chapter
20 41. General Provisions and Definitions
21 42. Collection of Items: Depositary and Collecting Banks
22 43. Collection of Items: Payor Banks
23 44. Relationship Between Payor Bank and Its Customer
24 45. Collection of Documentary Drafts
25 CHAPTER 41
26 GENERAL PROVISIONS AND DEFINITIONS
27 Sec.
28 4101. Short title of division.
29 4102. Applicability.
30 4103. Variation by agreement; measure of damages; certain
19790S0372B0376 - 163 -
1 action constituting ordinary care.
2 4104. Definitions and index of definitions.
3 4105. "Depositary bank"; "intermediary bank"; "collecting
4 bank"; "payor bank"; "presenting bank"; "remitting bank."
5 4106. Separate office of a bank.
6 4107. Time of receipt of items.
7 4108. Delays.
8 4109. Process of posting.
9 § 4101. Short title of division.
10 This division shall be known and may be cited as the "Uniform
11 Commercial Code--Bank Deposits and Collections."
12 § 4102. Applicability.
13 (a) Commercial paper and investment securities.--To the
14 extent that items within this division are also within the scope
15 of Division 3 (relating to commercial paper) and Division 8
16 (relating to investment securities), they are subject to the
17 provisions of those divisions. In the event of conflict the
18 provisions of this division govern those of Division 3 but the
19 provisions of Division 8 govern those of this division.
20 (b) Liability of bank with respect to items handled.--The
21 liability of a bank for action or nonaction with respect to any
22 item handled by it for purposes of presentment, payment or
23 collection is governed by the law of the place where the bank is
24 located. In the case of action or nonaction by or at a branch or
25 separate office of a bank, its liability is governed by the law
26 of the place where the branch or separate office is located.
27 § 4103. Variation by agreement; measure of damages; certain
28 action constituting ordinary care.
29 (a) Variation by agreement.--The effect of the provisions of
30 this division may be varied by agreement except that no
19790S0372B0376 - 164 -
1 agreement can disclaim the responsibility of a bank for its own
2 lack of good faith or failure to exercise ordinary care or can
3 limit the measure of damages for such lack or failure; but the
4 parties may by agreement determine the standards by which such
5 responsibility is to be measured if such standards are not
6 manifestly unreasonable.
7 (b) Rules and regulations having effect of agreements.--
8 Federal Reserve regulations and operating letters, clearing
9 house rules, and the like, have the effect of agreements under
10 subsection (a), whether or not specifically assented to by all
11 parties interested in items handled.
12 (c) Certain action constituting ordinary care.--Action or
13 nonaction approved by this division or pursuant to Federal
14 Reserve regulations or operating letters constitutes the
15 exercise of ordinary care and, in the absence of special
16 instructions, action or nonaction consistent with clearing house
17 rules and the like or with a general banking usage not
18 disapproved by this division, prima facie constitutes the
19 exercise of ordinary care.
20 (d) Effect of approval of certain procedures.--The
21 specification or approval of certain procedures by this division
22 does not constitute disapproval of other procedures which may be
23 reasonable under the circumstances.
24 (e) Measure of damages for failure to exercise ordinary
25 care.--The measure of damages for failure to exercise ordinary
26 care in handling an item is the amount of the item reduced by an
27 amount which could not have been realized by the use of ordinary
28 care, and where there is bad faith it includes other damages, if
29 any suffered by the party as a proximate consequence.
30 § 4104. Definitions and index of definitions.
19790S0372B0376 - 165 -
1 (a) Definitions.--The following words and phrases when used
2 in this division shall have, unless the context clearly
3 indicates otherwise, the meanings given to them in this
4 subsection:
5 "Account." Any account with a bank and includes a checking,
6 time, interest or savings account.
7 "Afternoon." The period of a day between noon and midnight.
8 "Banking day." That part of any day on which a bank is open
9 to the public for carrying on substantially all of its banking
10 functions.
11 "Clearing house." Any association of banks or other payors
12 regularly clearing items.
13 "Customer." Any person having an account with a bank or for
14 whom a bank has agreed to collect items and includes a bank
15 carrying an account with another bank.
16 "Documentary draft." Any negotiable or nonnegotiable draft
17 with accompanying documents, securities or other papers to be
18 delivered against honor of the draft.
19 "Item." Any instrument for the payment of money even though
20 it is not negotiable but does not include money.
21 "Midnight deadline." With respect to a bank is midnight on
22 its next banking day following the banking day on which it
23 receives the relevant item or notice or from which the time for
24 taking action commences to run, whichever is later.
25 "Properly payable." Includes the availability of funds for
26 payment at the time of decision to pay or dishonor.
27 "Settle." To pay in cash, by clearing house settlement, in a
28 charge or credit or by remittance, or otherwise as instructed. A
29 settlement may be either provisional or final.
30 "Suspends payments." With respect to a bank means that it
19790S0372B0376 - 166 -
1 has been closed by order of the supervisory authorities, that a
2 public officer has been appointed to take it over or that it
3 ceases or refuses to make payments in the ordinary course of
4 business.
5 (b) Index of other definitions in division.--Other
6 definitions applying to this division and the sections in which
7 they appear are:
8 "Collecting bank." Section 4105.
9 "Depositary bank." Section 4105.
10 "Intermediary bank." Section 4105.
11 "Payor bank." Section 4105.
12 "Presenting bank." Section 4105.
13 "Remitting bank." Section 4105.
14 (c) Index of definitions in other divisions.--The following
15 definitions in other divisions apply to this division:
16 "Acceptance." Section 3410.
17 "Certificate of deposit." Section 3104.
18 "Certification." Section 3411.
19 "Check." Section 3104.
20 "Draft." Section 3104.
21 "Holder in due course." Section 3302.
22 "Notice of dishonor." Section 3508.
23 "Presentment." Section 3504.
24 "Protest." Section 3509.
25 "Secondary party." Section 3102.
26 (d) Applicability of general definitions and principles.--In
27 addition Division 1 contains general definitions and principles
28 of construction and interpretation applicable throughout this
29 division.
30 § 4105. "Depositary bank"; "intermediary bank"; "collecting
19790S0372B0376 - 167 -
1 bank"; "payor bank"; "presenting bank"; "remitting
2 bank."
3 The following words and phrases when used in this division
4 shall have, unless the context clearly indicates otherwise, the
5 meanings given to them in this section:
6 "Collecting bank." Any bank handling the item for collection
7 except the payor bank.
8 "Depositary bank." The first bank to which an item is
9 transferred for collection even though it is also the payor
10 bank.
11 "Intermediary bank." Any bank to which an item is
12 transferred in course of collection except the depositary or
13 payor bank.
14 "Payor bank." A bank by which an item is payable as drawn or
15 accepted.
16 "Presenting bank." Any bank presenting an item except a
17 payor bank.
18 "Remitting bank." Any payor or intermediary bank remitting
19 for an item.
20 § 4106. Separate office of a bank.
21 A branch or separate office of a bank is a separate bank for
22 the purpose of computing the time within which and determining
23 the place at or to which action may be taken or notices or
24 orders shall be given under this division and under Division 3
25 (relating to commercial paper).
26 § 4107. Time of receipt of items.
27 (a) Cut-off hour for handling and book entries.--For the
28 purpose of allowing time to process items, prove balances and
29 make the necessary entries on its books to determine its
30 position for the day, a bank may fix an afternoon hour of 2 p.m.
19790S0372B0376 - 168 -
1 or later as a cut-off hour for the handling of money and items
2 and the making of entries on its books.
3 (b) Items or deposits received after cut-off hour.--Any item
4 or deposit of money received on any day after a cut-off hour so
5 fixed or after the close of the banking day may be treated as
6 being received at the opening of the next banking day.
7 § 4108. Delays.
8 (a) Delay permitted in effort to secure payment.--Unless
9 otherwise instructed, a collecting bank in a good faith effort
10 to secure payment may, in the case of specific items and with or
11 without the approval of any person involved, waive, modify or
12 extend time limits imposed or permitted by this title for a
13 period not in excess of an additional banking day without
14 discharge of secondary parties and without liability to its
15 transferor or any prior party.
16 (b) Delay excused by conditions beyond control of bank.--
17 Delay by a collecting bank or payor bank beyond time limits
18 prescribed or permitted by this title, or by instructions is
19 excused if caused by interruption of communication facilities,
20 suspension of payments by another bank, war, emergency
21 conditions or other circumstances beyond the control of the bank
22 provided it exercises such diligence as the circumstances
23 require.
24 § 4109. Process of posting.
25 The "process of posting" means the usual procedure followed
26 by a payor bank in determining to pay an item and in recording
27 the payment, including one or more of the following or other
28 steps as determined by the bank:
29 (1) Verification of any signature.
30 (2) Ascertaining that sufficient funds are available.
19790S0372B0376 - 169 -
1 (3) Affixing a "paid" or other stamp.
2 (4) Entering a charge or entry to the account of a
3 customer.
4 (5) Correcting or reversing an entry or erroneous action
5 with respect to the item.
6 CHAPTER 42
7 COLLECTION OF ITEMS: DEPOSITARY
8 AND COLLECTING BANKS
9 Sec.
10 4201. Presumption and duration of agency status of collecting
11 banks and provisional status of credits; applicability of
12 division; item indorsed "pay any bank."
13 4202. Responsibility for collection; when action seasonable.
14 4203. Effect of instructions.
15 4204. Methods of sending and presenting; sending direct to
16 payor bank.
17 4205. Supplying missing indorsement; no notice from prior
18 indorsement.
19 4206. Transfer between banks.
20 4207. Warranties of customer and collecting bank on transfer or
21 presentment of items; time for claims.
22 4208. Security interest of collecting bank in items,
23 accompanying documents and proceeds.
24 4209. When bank gives value for purposes of holder in due
25 course.
26 4210. Presentment by notice of item not payable by, through or
27 at a bank; liability of secondary parties.
28 4211. Media of remittance; provisional and final settlement in
29 remittance cases.
30 4212. Right of charge-back or refund.
19790S0372B0376 - 170 -
1 4213. Final payment of item by payor bank; when provisional
2 debits and credits become final; when certain credits
3 become available for withdrawal.
4 4214. Insolvency and preference.
5 § 4201. Presumption and duration of agency status of collecting
6 banks and provisional status of credits; applicability
7 of division; item indorsed "pay any bank."
8 (a) Agency status of bank and provisional status of
9 settlement.--Unless a contrary intent clearly appears and prior
10 to the time that a settlement given by a collecting bank for an
11 item is or becomes final (sections 4211(c), 4212 and 4213) the
12 bank is an agent or sub-agent of the owner of the item and any
13 settlement given for the item is provisional. This provision
14 applies regardless of the form of indorsement or lack of
15 indorsement and even though credit given for the item is subject
16 to immediate withdrawal as of right or is in fact withdrawn; but
17 the continuance of ownership of an item by its owner and any
18 rights of the owner to proceeds of the item are subject to
19 rights of a collecting bank such as those resulting from
20 outstanding advances on the item and valid rights of setoff.
21 When an item is handled by banks for purposes of presentment,
22 payment and collection, the relevant provisions of this division
23 apply even though action of parties clearly establishes that a
24 particular bank has purchased the item and is the owner of it.
25 (b) Effect of "pay any bank" indorsement.--After an item has
26 been indorsed with the words "pay any bank" or the like, only a
27 bank may acquire the rights of a holder:
28 (1) until the item has been returned to the customer
29 initiating collection; or
30 (2) until the item has been specially indorsed by a bank
19790S0372B0376 - 171 -
1 to a person who is not a bank.
2 § 4202. Responsibility for collection; when action seasonable.
3 (a) When collecting bank must use ordinary care.--A
4 collecting bank must use ordinary care in:
5 (1) presenting an item or sending it for presentment;
6 (2) sending notice of dishonor or nonpayment or
7 returning an item other than a documentary draft to the
8 transferor of the bank or directly to the depositary bank
9 under section 4212(b) (relating to right of charge-back or
10 refund) after learning that the item has not been paid or
11 accepted, as the case may be;
12 (3) settling for an item when the bank receives final
13 settlement;
14 (4) making or providing for any necessary protest; and
15 (5) notifying its transferor of any loss or delay in
16 transit within a reasonable time after discovery thereof.
17 (b) Seasonable action by bank.--A collecting bank taking
18 proper action before its midnight deadline following receipt of
19 an item, notice or payment acts seasonably; taking proper action
20 within a reasonably longer time may be seasonable but the bank
21 has the burden of so establishing.
22 (c) Nonliability of bank for action of others.--Subject to
23 subsection (a)(1), a bank is not liable for the insolvency,
24 neglect, misconduct, mistake or default of another bank or
25 person or for loss or destruction of an item in transit or in
26 the possession of others.
27 § 4203. Effect of instructions.
28 Subject to the provisions of Division 3 (relating to
29 commercial paper) concerning conversion of instruments (section
30 3419) and the provisions of both Division 3 and this division
19790S0372B0376 - 172 -
1 concerning restrictive indorsements, only a collecting bank's
2 transferor can give instructions which affect the bank or
3 constitute notice to it and a collecting bank is not liable to
4 prior parties for any action taken pursuant to such instructions
5 or in accordance with any agreement with its transferor.
6 § 4204. Methods of sending and presenting; sending direct to
7 payor bank.
8 (a) Collecting bank to send items by reasonably prompt
9 method.--A collecting bank must send items by reasonably prompt
10 method taking into consideration any relevant instructions, the
11 nature of the item, the number of such items on hand, and the
12 cost of collection involved and the method generally used by it
13 or others to present such items.
14 (b) Persons to whom bank may send items.--A collecting bank
15 may send:
16 (1) any item direct to the payor bank;
17 (2) any item to any nonbank payor if authorized by its
18 transferor; and
19 (3) any item other than documentary drafts to any
20 nonbank payor, if authorized by Federal Reserve regulation or
21 operating letter, clearing house rule or the like.
22 (c) Presentment where payor bank has requested.--Presentment
23 may be made by a presenting bank at a place where the payor bank
24 has requested that presentment be made.
25 § 4205. Supplying missing indorsement; no notice from prior
26 indorsement.
27 (a) Supplying missing indorsement.--A depositary bank which
28 has taken an item for collection may supply any indorsement of
29 the customer which is necessary to title unless the item
30 contains the words "payee's indorsement required" or the like.
19790S0372B0376 - 173 -
1 In the absence of such a requirement a statement placed on the
2 item by the depositary bank to the effect that the item was
3 deposited by a customer or credited to his account is effective
4 as the indorsement of the customer.
5 (b) Effect of restrictive indorsement on intermediary and
6 payor bank.--An intermediary bank, or payor bank which is not a
7 depositary bank, is neither given notice nor otherwise affected
8 by a restrictive indorsement of any person except the immediate
9 transferor of the bank.
10 § 4206. Transfer between banks.
11 Any agreed method which identifies the transferor bank is
12 sufficient for the further transfer of the item to another bank.
13 § 4207. Warranties of customer and collecting bank on transfer
14 or presentment of items; time for claims.
15 (a) Warranties to payor or acceptor.--Each customer or
16 collecting bank who obtains payment or acceptance of an item and
17 each prior customer and collecting bank warrants to the payor
18 bank or other payor who in good faith pays or accepts the item
19 that:
20 (1) he has a good title to the item or is authorized to
21 obtain payment or acceptance on behalf of one who has a good
22 title;
23 (2) he has no knowledge that the signature of the maker
24 or drawer is unauthorized, except that this warranty is not
25 given by any customer or collecting bank that is a holder in
26 due course and acts in good faith:
27 (i) to a maker with respect to the signature of the
28 maker;
29 (ii) to a drawer with respect to the signature of
30 the drawer, whether or not the drawer is also the drawee;
19790S0372B0376 - 174 -
1 or
2 (iii) to an acceptor of an item if the holder in due
3 course took the item after the acceptance or obtained the
4 acceptance without knowledge that the signature of the
5 drawer was unauthorized; and
6 (3) the item has not been materially altered, except
7 that this warranty is not given by any customer or collecting
8 bank that is a holder in due course and acts in good faith:
9 (i) to the maker of a note;
10 (ii) to the drawer of a draft whether or not the
11 drawer is also the drawee;
12 (iii) to the acceptor of an item with respect to an
13 alteration made prior to the acceptance if the holder in
14 due course took the item after the acceptance, even
15 though the acceptance provided "payable as originally
16 drawn" or equivalent terms; or
17 (iv) to the acceptor of an item with respect to an
18 alteration made after the acceptance.
19 (b) Warranties to transferee and subsequent collecting
20 bank.--Each customer and collecting bank who transfers an item
21 and receives a settlement or other consideration for it warrants
22 to his transferee and to any subsequent collecting bank who
23 takes the item in good faith that:
24 (1) he has a good title to the item or is authorized to
25 obtain payment or acceptance on behalf of one who has a good
26 title and the transfer is otherwise rightful;
27 (2) all signatures are genuine or authorized;
28 (3) the item has not been materially altered;
29 (4) no defense of any party is good against him; and
30 (5) he has no knowledge of any insolvency proceeding
19790S0372B0376 - 175 -
1 instituted with respect to the maker or acceptor or the
2 drawer of an unaccepted item.
3 In addition each customer and collecting bank so transferring an
4 item and receiving a settlement or other consideration engages
5 that upon dishonor and any necessary notice of dishonor and
6 protest he will take up the item.
7 (c) Effect of absence of express guaranty or warranty.--The
8 warranties and the engagement to honor set forth in subsections
9 (a) and (b) arise notwithstanding the absence of indorsement or
10 words of guaranty or warranty in the transfer or presentment and
11 a collecting bank remains liable for their breach despite
12 remittance to its transferor. Damages for breach of such
13 warranties or engagement to honor shall not exceed the
14 consideration received by the customer or collecting bank
15 responsible plus finance charges and expenses related to the
16 item, if any.
17 (d) Effect of delay in making claim for breach of
18 warranty.--Unless a claim for breach of warranty under this
19 section is made within a reasonable time after the person
20 claiming learns of the breach, the person liable is discharged
21 to the extent of any loss caused by the delay in making claim.
22 § 4208. Security interest of collecting bank in items,
23 accompanying documents and proceeds.
24 (a) General rule.--A bank has a security interest in an item
25 and any accompanying documents or the proceeds of either:
26 (1) in case of an item deposited in an account, to the
27 extent to which credit given for the item has been withdrawn
28 or applied;
29 (2) in case of an item for which it has given credit
30 available for withdrawal as of right, to the extent of the
19790S0372B0376 - 176 -
1 credit given whether or not the credit is drawn upon and
2 whether or not there is a right of charge-back; or
3 (3) if it makes an advance on or against the item.
4 (b) Partial withdrawal of credit given for several items.--
5 When credit which has been given for several items received at
6 one time or pursuant to a single agreement is withdrawn or
7 applied in part the security interest remains upon all the
8 items, any accompanying documents or the proceeds of either. For
9 the purpose of this section, credits first given are first
10 withdrawn.
11 (c) Satisfaction and continuation of security interest.--
12 Receipt by a collecting bank of a final settlement for an item
13 is a realization on its security interest in the item,
14 accompanying documents and proceeds. To the extent and so long
15 as the bank does not receive final settlement for the item or
16 give up possession of the item or accompanying documents for
17 purposes other than collection, the security interest continues
18 and is subject to the provisions of Division 9 (relating to
19 secured transactions) except that:
20 (1) no security agreement is necessary to make the
21 security interest enforceable (section 9203(a)(2) (relating
22 to enforceability of security interest; proceeds, formal
23 requisites));
24 (2) no filing is required to perfect the security
25 interest; and
26 (3) the security interest has priority over conflicting
27 perfected security interests in the item, accompanying
28 documents or proceeds.
29 § 4209. When bank gives value for purposes of holder in due
30 course.
19790S0372B0376 - 177 -
1 For purposes of determining its status as a holder in due
2 course, the bank has given value to the extent that it has a
3 security interest in an item provided that the bank otherwise
4 complies with the requirements of section 3302 (relating to
5 holder in due course).
6 § 4210. Presentment by notice of item not payable by, through
7 or at a bank; liability of secondary parties.
8 (a) Presentment by notice.--Unless otherwise instructed, a
9 collecting bank may present an item not payable by, through or
10 at a bank by sending to the party to accept or pay a written
11 notice that the bank holds the item for acceptance or payment.
12 The notice must be sent in time to be received on or before the
13 day when presentment is due and the bank must meet any
14 requirement of the party to accept or pay under section 3505
15 (relating to rights of a party to whom presentment is made) by
16 the close of the next banking day of the bank after it knows of
17 the requirement.
18 (b) Dishonor and notice to secondary party.--Where
19 presentment is made by notice and neither honor nor request for
20 compliance with a requirement under section 3505 is received by
21 the close of business on the day after maturity or in the case
22 of demand items by the close of business on the third banking
23 day after notice was sent, the presenting bank may treat the
24 item as dishonored and charge any secondary party by sending him
25 notice of the facts.
26 § 4211. Media of remittance; provisional and final settlement
27 in remittance cases.
28 (a) Media of remittance acceptable by collecting bank.--A
29 collecting bank may take in settlement of an item:
30 (1) a check of the remitting bank or of another bank on
19790S0372B0376 - 178 -
1 any bank except the remitting bank;
2 (2) a cashier's check or similar primary obligation of a
3 remitting bank which is a member of or clears through a
4 member of the same clearing house or group as the collecting
5 bank;
6 (3) appropriate authority to charge an account of the
7 remitting bank or of another bank with the collecting bank;
8 or
9 (4) if the item is drawn upon or payable by a person
10 other than a bank, a cashier's check, certified check or
11 other bank check or obligation.
12 (b) Liability of bank on dishonor of remittance.--If before
13 its midnight deadline the collecting bank properly dishonors a
14 remittance check or authorization to charge on itself or
15 presents or forwards for collection a remittance instrument of
16 or on another bank which is of a kind approved by subsection (a)
17 or has not been authorized by it, the collecting bank is not
18 liable to prior parties in the event of the dishonor of such
19 check, instrument or authorization.
20 (c) Time of final settlement of item.--A settlement for an
21 item by means of a remittance instrument or authorization to
22 charge is or becomes a final settlement as to both the person
23 making and the person receiving the settlement:
24 (1) if the remittance instrument or authorization to
25 charge is of a kind approved by subsection (a) or has not
26 been authorized by the person receiving the settlement and in
27 either case the person receiving the settlement acts
28 seasonably before its midnight deadline in presenting,
29 forwarding for collection or paying the instrument or
30 authorization, at the time the remittance instrument or
19790S0372B0376 - 179 -
1 authorization is finally paid by the payor by which it is
2 payable;
3 (2) if the person receiving the settlement has
4 authorized remittance by a nonbank check or obligation or by
5 a cashier's check or similar primary obligation of or a check
6 upon the payor or other remitting bank which is not of a kind
7 approved by subsection (a)(2), at the time of the receipt of
8 such remittance check or obligation; or
9 (3) if in a case not covered by paragraph (1) or (2) the
10 person receiving the settlement fails to seasonably present,
11 forward for collection, pay or return a remittance instrument
12 or authorization to it to charge before its midnight
13 deadline, at such midnight deadline.
14 § 4212. Right of charge-back or refund.
15 (a) Right of collecting bank to charge-back or refund.--If a
16 collecting bank has made provisional settlement with its
17 customer for an item and itself fails by reason of dishonor,
18 suspension of payments by a bank or otherwise to receive a
19 settlement for the item which is or becomes final, the bank may
20 revoke the settlement given by it, charge back the amount of any
21 credit given for the item to the account of its customer or
22 obtain refund from its customer whether or not it is able to
23 return the item if by its midnight deadline or within a longer
24 reasonable time after it learns the facts it returns the item or
25 sends notification of the facts. These rights to revoke, charge-
26 back and obtain refund terminate if and when a settlement for
27 the item received by the bank is or becomes final (sections
28 4211(c) and 4213(b) and (c)).
29 (b) Return of unpaid item to depositary bank.--Within the
30 time and manner prescribed by this section and section 4301
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1 (relating to recovery of payment by return of items), an
2 intermediary or payor bank, as the case may be, may return an
3 unpaid item directly to the depositary bank and may send for
4 collection a draft on the depositary bank and obtain
5 reimbursement. In such case, if the depositary bank has received
6 provisional settlement for the item, it must reimburse the bank
7 drawing the draft and any provisional credits for the item
8 between banks and shall become and remain final.
9 (c) Right of depositary-payor bank to charge-back or
10 refund.--A depositary bank which is also the payor may charge-
11 back the amount of an item to the account of its customer or
12 obtain refund in accordance with the section governing return of
13 an item received by a payor bank for credit on it books (section
14 4301).
15 (d) Right of charge-back unaffected in certain cases.--The
16 right to charge-back is not affected by:
17 (1) prior use of the credit given for the item; or
18 (2) failure by any bank to exercise ordinary care with
19 respect to the item but any bank so failing remains liable.
20 (e) Effect of failure to charge-back or claim refund.--A
21 failure to charge-back or claim refund does not affect other
22 rights of the bank against the customer or any other party.
23 (f) Credit in dollars for item payable in foreign
24 currency.--If credit is given in dollars as the equivalent of
25 the value of an item payable in a foreign currency the dollar
26 amount of any charge-back or refund shall be calculated on the
27 basis of the buying sight rate for the foreign currency
28 prevailing on the day when the person entitled to the charge-
29 back or refund learns that it will not receive payment in
30 ordinary course.
19790S0372B0376 - 181 -
1 § 4213. Final payment of item by payor bank; when provisional
2 debits and credits become final; when certain credits
3 become available for withdrawal.
4 (a) When item is finally paid by payor bank.--An item is
5 finally paid by a payor bank when the bank has done any of the
6 following, whichever happens first:
7 (1) Paid the item in cash.
8 (2) Settled for the item without reserving a right to
9 revoke the settlement and without having such right under
10 statute, clearing house rule or agreement.
11 (3) Completed the process of posting the item to the
12 indicated account of the drawer, maker or other person to be
13 charged therewith.
14 (4) Made a provisional settlement for the item and
15 failed to revoke the settlement in the time and manner
16 permitted by statute, clearing house rule or agreement.
17 Upon a final payment under paragraph (2), (3) or (4), the payor
18 bank shall be accountable for the amount of the item.
19 (b) When provisional debits and credits become final.--If
20 provisional settlement for an item between the presenting and
21 payor banks is made through a clearing house or by debits or
22 credits in an account between them, then to the extent that
23 provisional debits or credits for the item are entered in
24 accounts between the presenting and payor banks or between the
25 presenting and successive prior collecting banks seriatim, they
26 become final upon final payment of the item by the payor bank.
27 (c) Accountability of collecting bank to customer upon final
28 settlement.--If a collecting bank receives a settlement for an
29 item which is or becomes final (sections 4211(c) and 4213(b))
30 the bank is accountable to its customer for the amount of the
19790S0372B0376 - 182 -
1 item and any provisional credit given for the item in an account
2 with its customer becomes final.
3 (d) When credit becomes available for withdrawal.--Subject
4 to any right of the bank to apply the credit to an obligation of
5 the customer, credit given by a bank for an item in an account
6 with its customer becomes available for withdrawal as of right:
7 (1) in any case where the bank has received a
8 provisional settlement for the item, when such settlement
9 becomes final and the bank has had a reasonable time to learn
10 that the settlement is final; and
11 (2) in any case where the bank is both a depositary bank
12 and a payor bank and the item is finally paid, at the opening
13 of the second banking day of the bank following receipt of
14 the item.
15 (e) When deposit of money becomes available for
16 withdrawal.--A deposit of money in a bank is final when made
17 but, subject to any right of the bank to apply the deposit to an
18 obligation of the customer, the deposit becomes available for
19 withdrawal as of right at the opening of the next banking day of
20 the bank following receipt of the deposit.
21 § 4214. Insolvency and preference.
22 (a) Return of unpaid item by agent of closed bank.--Any item
23 in or coming into the possession of a payor or collecting bank
24 which suspends payment and which item is not finally paid shall
25 be returned by the receiver, trustee or agent in charge of the
26 closed bank to the presenting bank or the customer of the closed
27 bank.
28 (b) Preferred claim against payor bank by owner of unsettled
29 item.--If a payor bank finally pays an item and suspends
30 payments without making a settlement for the item with its
19790S0372B0376 - 183 -
1 customer or the presenting bank which settlement is or becomes
2 final, the owner of the item has preferred claim against the
3 payor bank.
4 (c) Finality of provisional settlement by payor or
5 collecting bank unaffected.--If a payor bank gives or a
6 collecting bank gives or receives a provisional settlement for
7 an item and thereafter suspends payments, the suspension does
8 not prevent or interfere with the settlement becoming final if
9 such finality occurs automatically upon the lapse of certain
10 time or the happening of certain events (sections 4211(c) and
11 4213(a)(4), (b) and (c)).
12 (d) Preferred claim against collecting bank by owner of
13 unsettled item.--If a collecting bank receives from subsequent
14 parties settlement for an item which settlement is or becomes
15 final and suspends payments without making a settlement for the
16 item with its customer which is or becomes final, the owner of
17 the item has a preferred claim against such collecting bank.
18 CHAPTER 43
19 COLLECTION OF ITEMS: PAYOR BANKS
20 Sec.
21 4301. Deferred posting; recovery of payment by return of items;
22 time of dishonor.
23 4302. Responsibility of payor bank for late return of item.
24 4303. When items subject to notice, stop-order, legal process
25 or set-off; order in which items may be charged or
26 certified.
27 § 4301. Deferred posting; recovery of payment by return of
28 items; time of dishonor.
29 (a) Return by payor bank of item provisionally settled.--
30 Where an authorized settlement for a demand item (other than a
19790S0372B0376 - 184 -
1 documentary draft) received by a payor bank otherwise than for
2 immediate payment over the counter has been made before midnight
3 of the banking day of receipt the payor bank may revoke the
4 settlement and recover any payment if before it has made final
5 payment (section 4213(a)) and before its midnight deadline it:
6 (1) returns the item; or
7 (2) sends written notice of dishonor or nonpayment if
8 the item is held for protest or is otherwise unavailable for
9 return.
10 (b) Time for return of provisionally settled item.--If a
11 demand item is received by a payor bank for credit on its books
12 it may return such item or send notice of dishonor and may
13 revoke any credit given or recover the amount thereof withdrawn
14 by its customer, if it acts within the time limit and in the
15 manner specified in subsection (a).
16 (c) Time when item is dishonored.--Unless previous notice of
17 dishonor has been sent an item is dishonored at the time when
18 for purposes of dishonor it is returned or notice sent in
19 accordance with this section.
20 (d) Acts constituting return of item.--An item is returned:
21 (1) as to an item received through a clearing house,
22 when it is delivered to the presenting or last collecting
23 bank or to the clearing house or is sent or delivered in
24 accordance with its rules; or
25 (2) in all other cases, when it is sent or delivered to
26 the bank's customer or transferor or pursuant to his
27 instructions.
28 § 4302. Responsibility of payor bank for late return of item.
29 In the absence of a valid defense such as breach of a
30 presentment warranty (section 4207(a)), settlement effected or
19790S0372B0376 - 185 -
1 the like, if an item is presented on and received by a payor
2 bank the bank is accountable for the amount of:
3 (1) a demand item other than a documentary draft whether
4 properly payable or not if the bank, in any case where it is
5 not also the depositary bank, retains the item beyond
6 midnight of the banking day of receipt without settling for
7 it or, regardless of whether it is also the depositary bank,
8 does not pay or return the item or send notice of dishonor
9 until after its midnight deadline; or
10 (2) any other properly payable item unless within the
11 time allowed for acceptance or payment of that item the bank
12 either accepts or pays the item or returns it and
13 accompanying documents.
14 § 4303. When items subject to notice, stop-order, legal process
15 or set-off; order in which items may be charged or
16 certified.
17 (a) When items subject to knowledge, notice, stop-order,
18 legal process or set-off.--Any knowledge, notice or stop-order
19 received by, legal process served upon or set-off exercised by a
20 payor bank, whether or not effective under other rules of law to
21 terminate, suspend or modify the right or duty of the bank to
22 pay an item or to charge the account of its customer for the
23 item, comes too late to so terminate, suspend or modify such
24 right or duty if the knowledge, notice, stop-order or legal
25 process is received or served and a reasonable time for the bank
26 to act thereon expires or the set-off is exercised after the
27 bank has done any of the following:
28 (1) Accepted or certified the item.
29 (2) Paid the item in cash.
30 (3) Settled for the item without reserving a right to
19790S0372B0376 - 186 -
1 revoke the settlement and without having such right under
2 statute, clearing house rule or agreement.
3 (4) Completed the process of posting the item to the
4 indicated account of the drawer, maker or other person to be
5 charged therewith or otherwise has evidenced by examination
6 of such indicated account and by action its decision to pay
7 the item.
8 (5) Become accountable for the amount of the item under
9 section 4213(a)(4) (relating to final payment of item by
10 payor bank) and section 4302 (relating to responsibility of
11 payor bank for late return of item).
12 (b) Order in which items may be accepted, paid, certified or
13 charged.--Subject to the provisions of subsection (a) items may
14 be accepted, paid, certified or charged to the indicated account
15 of its customer in any order convenient to the bank.
16 CHAPTER 44
17 RELATIONSHIP BETWEEN PAYOR BANK
18 AND ITS CUSTOMER
19 Sec.
20 4401. When bank may charge account of customer.
21 4402. Liability of bank to customer for wrongful dishonor.
22 4403. Right of customer to stop payment; burden of proof of
23 loss.
24 4404. Bank not obligated to pay check more than six months old.
25 4405. Death or incompetence of customer.
26 4406. Duty of customer to discover and report unauthorized
27 signature or alteration.
28 4407. Right of payor bank to subrogation on improper payment.
29 § 4401. When bank may charge account of customer.
30 (a) General rule.--As against its customer, a bank may
19790S0372B0376 - 187 -
1 charge against his account any item which is otherwise properly
2 payable from that account even though the charge creates an
3 overdraft.
4 (b) Payment to holder on altered or completed item.--A bank
5 which in good faith makes payment to a holder may charge the
6 indicated account of its customer according to:
7 (1) the original tenor of his altered item; or
8 (2) the tenor of his completed item, even though the
9 bank knows the item has been completed unless the bank has
10 notice that the completion was improper.
11 § 4402. Liability of bank to customer for wrongful dishonor.
12 A payor bank is liable to its customer for damages
13 proximately caused by the wrongful dishonor of an item. When the
14 dishonor occurs through mistake liability is limited to actual
15 damages proved. If so proximately caused and proved damages may
16 include damages for an arrest or prosecution of the customer or
17 other consequential damages. Whether any consequential damages
18 are proximately caused by the wrongful dishonor is a question of
19 fact to be determined in each case.
20 § 4403. Right of customer to stop payment; burden of proof of
21 loss.
22 (a) Right of customer to stop payment.--A customer may by
23 order to his bank stop payment of any item payable for his
24 account but the order must be received at such time and in such
25 manner as to afford the bank a reasonable opportunity to act on
26 it prior to any action by the bank with respect to the item
27 described in section 4303 (relating to when an item is subject
28 to notice, stop-order, legal process or set-off).
29 (b) Duration of stop payment orders.--An oral order is
30 binding upon the bank only for 14 calendar days unless confirmed
19790S0372B0376 - 188 -
1 in writing within that period. A written order is effective for
2 only six months unless renewed in writing.
3 (c) Burden of proof of loss.--The burden of establishing the
4 fact and amount of loss resulting from the payment of an item
5 contrary to a binding stop payment order is on the customer.
6 § 4404. Bank not obligated to pay check more than six months
7 old.
8 A bank is under no obligation to a customer having a checking
9 account to pay a check, other than a certified check, which is
10 presented more than six months after its date, but it may charge
11 the account of its customer for a payment made thereafter in
12 good faith.
13 § 4405. Death or incompetence of customer.
14 (a) Authority of bank unaffected in absence of knowledge.--
15 The authority of a payor or collecting bank to accept, pay or
16 collect an item or to account for proceeds of its collection if
17 otherwise effective is not rendered ineffective by incompetence
18 of a customer of either bank existing at the time the item is
19 issued or its collection is undertaken if the bank does not know
20 of an adjudication of incompetence. Neither death nor
21 incompetence of a customer revokes such authority to accept,
22 pay, collect or account until the bank knows of the fact of
23 death or of an adjudication of incompetence and has reasonable
24 opportunity to act on it.
25 (b) Limited authority of bank following knowledge.--Even
26 with knowledge a bank may for ten days after the date of death
27 pay or certify checks drawn on or prior to that date unless
28 ordered to stop payment by a person claiming an interest in the
29 account.
30 § 4406. Duty of customer to discover and report unauthorized
19790S0372B0376 - 189 -
1 signature or alteration.
2 (a) General rule.--When a bank sends to its customer a
3 statement of account accompanied by items paid in good faith in
4 support of the debit entries or holds the statement and items
5 pursuant to a request or instructions of its customer or
6 otherwise in a reasonable manner makes the statement and items
7 available to the customer, the customer must exercise reasonable
8 care and promptness to examine the statement and items to
9 discover his unauthorized signature or any alteration on an item
10 and must notify the bank promptly after discovery thereof.
11 (b) Effect of failure to report unauthorized signature or
12 alteration.--If the bank establishes that the customer failed
13 with respect to an item to comply with the duties imposed on the
14 customer by subsection (a) the customer is precluded from
15 asserting against the bank:
16 (1) his unauthorized signature or any alteration on the
17 item if the bank also establishes that it suffered a loss by
18 reason of such failure; and
19 (2) an unauthorized signature or alteration by the same
20 wrongdoer on any other item paid in good faith by the bank
21 after the first item and statement was available to the
22 customer for a reasonable period not exceeding 14 calendar
23 days and before the bank receives notification from the
24 customer of any such unauthorized signature or alteration.
25 (c) Nonliability of bank affected by lack of ordinary
26 care.--The preclusion under subsection (b) does not apply if the
27 customer establishes lack of ordinary care on the part of the
28 bank in paying the item.
29 (d) Statutes of limitations applicable to customer.--Without
30 regard to care or lack of care of either the customer or the
19790S0372B0376 - 190 -
1 bank a customer who does not within one year from the time the
2 statement and items are made available to the customer
3 (subsection (a)) discover and report his unauthorized signature
4 or any alteration on the face or back of the item or does not
5 within three years from that time discover and report any
6 unauthorized indorsement is precluded from asserting against the
7 bank such unauthorized signature or indorsement or such
8 alteration.
9 (e) Effect of waiver of valid defense of payor bank.--If
10 under this section a payor bank has a valid defense against a
11 claim of a customer upon or resulting from payment of an item
12 and waives or fails upon request to assert the defense the bank
13 may not assert against any collecting bank or other prior party
14 presenting or transferring the item a claim based upon the
15 unauthorized signature or alteration giving rise to the claim of
16 the customer.
17 § 4407. Right of payor bank to subrogation on improper payment.
18 If a payor bank has paid an item over the stop payment order
19 of the drawer or maker or otherwise under circumstances giving a
20 basis for objection by the drawer or maker, to prevent unjust
21 enrichment and only to the extent necessary to prevent loss to
22 the bank by reason of its payment of the item, the payor bank
23 shall be subrogated to the rights:
24 (1) of any holder in due course on the item against the
25 drawer or maker;
26 (2) of the payee or any other holder of the item against
27 the drawer or maker either on the item or under the
28 transaction out of which the item arose; and
29 (3) of the drawer or maker against the payee or any
30 other holder of the item with respect to the transaction out
19790S0372B0376 - 191 -
1 of which the item arose.
2 CHAPTER 45
3 COLLECTION OF DOCUMENTARY DRAFTS
4 Sec.
5 4501. Handling of documentary drafts; duty to send for
6 presentment and to notify customer of dishonor.
7 4502. Presentment of "on arrival" drafts.
8 4503. Responsibility of presenting bank for documents and
9 goods; report of reasons for dishonor; referee in case
10 of need.
11 4504. Privilege of presenting bank to deal with goods; security
12 interest for expenses.
13 § 4501. Handling of documentary drafts; duty to send for
14 presentment and to notify customer of dishonor.
15 A bank which takes a documentary draft for collection must
16 present or send the draft and accompanying documents for
17 presentment and upon learning that the draft has not been paid
18 or accepted in due course must seasonably notify its customer of
19 such fact even though it may have discounted or bought the draft
20 or extended credit available for withdrawal as of right.
21 § 4502. Presentment of "on arrival" drafts.
22 When a draft or the relevant instructions require presentment
23 "on arrival", "when goods arrive" or the like, the collecting
24 bank need not present until in its judgment a reasonable time
25 for arrival of the goods has expired. Refusal to pay or accept
26 because the goods have not arrived is not dishonor; the bank
27 must notify its transferor of such refusal but need not present
28 the draft again until it is instructed to do so or learns of the
29 arrival of the goods.
30 § 4503. Responsibility of presenting bank for documents and
19790S0372B0376 - 192 -
1 goods; report of reasons for dishonor; referee in case
2 of need.
3 Unless otherwise instructed and except as provided in
4 Division 5 (relating to letters of credit) a bank presenting a
5 documentary draft:
6 (1) must deliver the documents to the drawee on
7 acceptance of the draft if it is payable more than three days
8 after presentment; otherwise, only on payment; and
9 (2) upon dishonor, either in the case of presentment for
10 acceptance or presentment for payment, may seek and follow
11 instructions from any referee in case of need designated in
12 the draft or if the presenting bank does not choose to
13 utilize his services it must use diligence and good faith to
14 ascertain the reason for dishonor, must notify its transferor
15 of the dishonor and of the results of its effort to ascertain
16 the reasons therefor and must request instructions.
17 But the presenting bank is under no obligation with respect to
18 goods represented by the documents except to follow any
19 reasonable instructions seasonably received; it has a right to
20 reimbursement for any expense incurred in following instructions
21 and to prepayment of or indemnity for such expenses.
22 § 4504. Privilege of presenting bank to deal with goods;
23 security interest for expenses.
24 (a) Dealing with goods following dishonor of documentary
25 draft.--A presenting bank which, following the dishonor of a
26 documentary draft, has seasonably requested instructions but
27 does not receive them within a reasonable time may store, sell,
28 or otherwise deal with the goods in any reasonable manner.
29 (b) Security interest for expenses.--For its reasonable
30 expenses incurred by action under subsection (a) the presenting
19790S0372B0376 - 193 -
1 bank has a lien upon the goods or their proceeds, which may be
2 foreclosed in the same manner as an unpaid lien of a seller.
3 DIVISION 5
4 LETTERS OF CREDIT
5 Chapter
6 51. Letters of Credit
7 CHAPTER 51
8 LETTERS OF CREDIT
9 Sec.
10 5101. Short title of division.
11 5102. Scope of division.
12 5103. Definitions and index of definitions.
13 5104. Formal requirements; signing.
14 5105. Consideration.
15 5106. Time and effect of establishment of credit.
16 5107. Advice of credit; confirmation; error in statement of
17 terms.
18 5108. "Notation credit"; exhaustion of credit.
19 5109. Obligation of issuer to its customer.
20 5110. Availability of credit in portions; reservation by
21 presenter of lien or claim.
22 5111. Warranties on transfer and presentment.
23 5112. Time allowed for honor or rejection; withholding honor or
24 rejection by consent; "presenter."
25 5113. Indemnities.
26 5114. Duty and privilege of issuer to honor; right to
27 reimbursement.
28 5115. Remedy for improper dishonor or anticipatory repudiation.
29 5116. Transfer and assignment.
30 5117. Insolvency of bank holding funds for documentary credit.
19790S0372B0376 - 194 -
1 § 5101. Short title of division.
2 This division shall be known and may be cited as the "Uniform
3 Commercial Code--Letters of Credit."
4 § 5102. Scope of division.
5 (a) Applicability of division.--This division applies:
6 (1) to a credit issued by a bank if the credit requires
7 a documentary draft or a documentary demand for payment;
8 (2) to a credit issued by a person other than a bank if
9 the credit requires that the draft or demand for payment be
10 accompanied by a document of title; and
11 (3) to a credit issued by a bank or other person if the
12 credit is not within paragraphs (1) and (2) but conspicuously
13 states that it is a letter of credit or is conspicuously so
14 entitled.
15 (b) Inapplicability of division.--Unless the engagement
16 meets the requirements of subsection (a), this division does not
17 apply to engagements to make advances or to honor drafts or
18 demands for payment, to authorities to pay or purchase, to
19 guarantees or to general agreements.
20 (c) Rules and concepts of letters of credit.--This division
21 deals with some but not all of the rules and concepts of letters
22 of credit as such rules or concepts have developed prior to this
23 title or may hereafter develop. The fact that this division
24 states a rule does not by itself require, imply or negate
25 application of the same or a converse rule to a situation not
26 provided for or to a person not specified by this division.
27 § 5103. Definitions and index of definitions.
28 (a) Definitions.--The following words and phrases when used
29 in this division shall have, unless the context clearly
30 indicates otherwise, the meanings given to them in this
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1 subsection:
2 "Advising bank." A bank which gives notification of the
3 issuance of a credit by another bank.
4 "Beneficiary." Beneficiary of a credit is a person who is
5 entitled under its terms to draw or demand payment.
6 "Confirming bank." A bank which engages either that it will
7 itself honor a credit already issued by another bank or that
8 such a credit will be honored by the issuer or a third bank.
9 "Credit" or "letter of credit." An engagement by a bank or
10 other person made at the request of a customer and of a kind
11 within the scope of this division (section 5102) that the issuer
12 will honor drafts or other demands for payment upon compliance
13 with the conditions specified in the credit. A credit may be
14 either revocable or irrevocable. The engagement may be either an
15 agreement to honor or a statement that the bank or other person
16 is authorized to honor.
17 "Customer." A buyer or other person who causes an issuer to
18 issue a credit. The term also includes a bank which procures
19 issuance or confirmation on behalf of a customer of that bank.
20 "Documentary draft" or a "documentary demand for payment."
21 One honor of which is conditioned upon the presentation of a
22 document or documents. "Document" means any paper including
23 document of title, security, invoice, certificate, notice of
24 default and the like.
25 "Issuer." A bank or other person issuing a credit.
26 (b) Index of other definitions in division.--Other
27 definitions applying to this division and the sections in which
28 they appear are:
29 "Notation credit." Section 5108.
30 "Presenter." Section 5112(c).
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1 (c) Index of definitions in other divisions.--Definitions in
2 other divisions applying to this division and the sections in
3 which they appear are:
4 "Accept" or "acceptance." Section 3410.
5 "Contract for sale." Section 2106.
6 "Draft." Section 3104.
7 "Holder in due course." Section 3302.
8 "Midnight deadline." Section 4104.
9 "Security." Section 8102.
10 (d) Applicability of general definitions and principles.--In
11 addition, Division 1 (relating to general provisions) contains
12 general definitions and principles of construction and
13 interpretation applicable throughout this division.
14 § 5104. Formal requirements; signing.
15 (a) General rule.--Except as otherwise required in section
16 5102(a)(3) on scope, no particular form of phrasing is required
17 for a credit. A credit must be in writing and signed by the
18 issuer and a confirmation must be in writing and signed by the
19 confirming bank. A modification of the terms of a credit or
20 confirmation must be signed by the issuer or confirming bank.
21 (b) Telegram as signed writing.--A telegram may be a
22 sufficient signed writing if it identifies its sender by an
23 authorized authentication. The authentication may be in code and
24 the authorized naming of the issuer in an advice of credit is a
25 sufficient signing.
26 § 5105. Consideration.
27 No consideration is necessary to establish a credit or to
28 enlarge or otherwise modify its terms.
29 § 5106. Time and effect of establishment of credit.
30 (a) Time of establishment of credit.--Unless otherwise
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1 agreed a credit is established:
2 (1) as regards the customer as soon as a letter of
3 credit is sent to him or the letter of credit or an
4 authorized written advice of its issuance is sent to the
5 beneficiary; and
6 (2) as regards the beneficiary when he receives a letter
7 of credit or an authorized written advice of its issuance.
8 (b) Modification or revocation of irrevocable credit.--
9 Unless otherwise agreed once an irrevocable credit is
10 established as regards the customer it can be modified or
11 revoked only with the consent of the customer and once it is
12 established as regards the beneficiary it can be modified or
13 revoked only with his consent.
14 (c) Modification or revocation of revocable credit.--Unless
15 otherwise agreed after a revocable credit is established it may
16 be modified or revoked by the issuer without notice to or
17 consent from the customer or beneficiary.
18 (d) Rights following modification or revocation of revocable
19 credit.--Notwithstanding any modification or revocation of a
20 revocable credit any person authorized to honor or negotiate
21 under the terms of the original credit is entitled to
22 reimbursement for or honor of any draft or demand for payment
23 duly honored or negotiated before receipt of notice of the
24 modification or revocation and the issuer in turn is entitled to
25 reimbursement from its customer.
26 § 5107. Advice of credit; confirmation; error in statement of
27 terms.
28 (a) Obligation of bank advising a credit.--Unless otherwise
29 specified an advising bank by advising a credit issued by
30 another bank does not assume any obligation to honor drafts
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1 drawn or demands for payment made under the credit but it does
2 assume obligation for the accuracy of its own statement.
3 (b) Obligation of bank confirming a credit.--A confirming
4 bank by confirming a credit becomes directly obligated on the
5 credit to the extent of its confirmation as though it were its
6 issuer and acquires the rights of an issuer.
7 (c) Effect when bank incorrectly advises terms of credit.--
8 Even though an advising bank incorrectly advises the terms of a
9 credit it has been authorized to advise the credit is
10 established as against the issuer to the extent of its original
11 terms.
12 (d) Risks borne by customer as against issuer.--Unless
13 otherwise specified the customer bears as against the issuer all
14 risks of transmission and reasonable translation or
15 interpretation of any message relating to a credit.
16 § 5108. "Notation credit"; exhaustion of credit.
17 (a) Definition of "notation credit".--A credit which
18 specifies that any person purchasing or paying drafts drawn or
19 demands for payment made under it must note the amount of the
20 draft or demand on the letter or advice of credit is a "notation
21 credit."
22 (b) Rights of parties under notation credit.--Under a
23 notation credit:
24 (1) a person paying the beneficiary or purchasing a
25 draft or demand for payment from him acquires a right to
26 honor only if the appropriate notation is made and by
27 transferring or forwarding for honor the documents under the
28 credit such a person warrants to the issuer that the notation
29 has been made; and
30 (2) unless the credit or a signed statement that an
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1 appropriate notation has been made accompanies the draft or
2 demand for payment the issuer may delay honor until evidence
3 of notation has been procured which is satisfactory to it but
4 its obligation and that of its customer continue for a
5 reasonable time not exceeding 30 days to obtain such
6 evidence.
7 (c) Rights of parties under other credit.--If the credit is
8 not a notation credit:
9 (1) the issuer may honor complying drafts or demands for
10 payment presented to it in the order in which they are
11 presented and is discharged pro tanto by honor of any such
12 draft or demand; and
13 (2) as between competing good faith purchasers of
14 complying drafts or demands the person first purchasing has
15 priority over a subsequent purchaser even though the later
16 purchased draft or demand has been first honored.
17 § 5109. Obligation of issuer to its customer.
18 (a) General rule.--The obligation of an issuer to its
19 customer includes good faith and observance of any general
20 banking usage but unless otherwise agreed does not include
21 liability or responsibility:
22 (1) for performance of the underlying contract for sale
23 or other transaction between the customer and the
24 beneficiary;
25 (2) for any act or omission of any person other than
26 itself or its own branch or for loss or destruction of a
27 draft, demand or document in transit or in the possession of
28 others; or
29 (3) based on knowledge or lack of knowledge of any usage
30 of any particular trade.
19790S0372B0376 - 200 -
1 (b) Duty to examine documents.--An issuer must examine
2 documents with care so as to ascertain that on their face they
3 appear to comply with the terms of the credit but unless
4 otherwise agreed assumes no liability or responsibility for the
5 genuineness, falsification or effect of any document which
6 appears on such examination to be regular on its face.
7 (c) Effect of bank usage on nonbank issuer.--A nonbank
8 issuer is not bound by any banking usage of which it has no
9 knowledge.
10 § 5110. Availability of credit in portions; reservation by
11 presenter of lien or claim.
12 (a) Availability of credit in portions.--Unless otherwise
13 specified a credit may be used in portions in the discretion of
14 the beneficiary.
15 (b) Relinquishment and reservation of claim.--Unless
16 otherwise specified a person by presenting a documentary draft
17 or demand for payment under a credit relinquishes upon its honor
18 all claims to the documents and a person by transferring such
19 draft or demand or causing such presentment authorizes such
20 relinquishment. An explicit reservation of claim makes the draft
21 or demand noncomplying.
22 § 5111. Warranties on transfer and presentment.
23 (a) Warranties of beneficiary.--Unless otherwise agreed the
24 beneficiary by transferring or presenting a documentary draft or
25 demand for payment warrants to all interested parties that the
26 necessary conditions of the credit have been complied with. This
27 is in addition to any warranties arising under Divisions 3
28 (relating to commercial paper), 4 (relating to bank deposits and
29 collections), 7 (relating to warehouse receipts, bills of lading
30 and other documents of title) and 8 (relating to investment
19790S0372B0376 - 201 -
1 securities).
2 (b) Warranties of banks.--Unless otherwise agreed a
3 negotiating, advising, confirming, collecting or issuing bank
4 presenting or transferring a draft or demand for payment under a
5 credit warrants only the matters warranted by a collecting bank
6 under Division 4 and any such bank transferring a document
7 warrants only the matters warranted by an intermediary under
8 Divisions 7 and 8.
9 § 5112. Time allowed for honor or rejection; withholding honor
10 or rejection by consent; "presenter."
11 (a) Time allowed for honor or rejection.--A bank to which a
12 documentary draft or demand for payment is presented under a
13 credit may without dishonor of the draft, demand or credit:
14 (1) defer honor until the close of the third banking day
15 following receipt of the documents; and
16 (2) further defer honor if the presenter has expressly
17 or impliedly consented thereto.
18 Failure to honor within the time here specified constitutes
19 dishonor of the draft or demand and of the credit.
20 (b) Fulfillment of duty to return draft or demand upon
21 dishonor.--Upon dishonor the bank may unless otherwise
22 instructed fulfill its duty to return the draft or demand and
23 the documents by holding them at the disposal of the presenter
24 and sending him an advice to that effect.
25 (c) Definition of "presenter".--"Presenter" means any person
26 presenting a draft or demand for payment for honor under a
27 credit even though that person is a confirming bank or other
28 correspondent which is acting under the authorization of an
29 issuer.
30 § 5113. Indemnities.
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1 (a) General rule.--A bank seeking to obtain (whether for
2 itself or another) honor, negotiation or reimbursement under a
3 credit may give an indemnity to induce such honor, negotiation
4 or reimbursement.
5 (b) Application and duration of indemnity agreement.--An
6 indemnity agreement inducing honor, negotiation or
7 reimbursement:
8 (1) unless otherwise explicitly agreed applies to
9 defects in the documents but not in the goods; and
10 (2) unless a longer time is explicitly agreed expires at
11 the end of ten business days following receipt of the
12 documents by the ultimate customer unless notice of objection
13 is sent before such expiration date. The ultimate customer
14 may send notice of objection to the person from whom he
15 received the documents and any bank receiving such notice is
16 under a duty to send notice to its transferor before its
17 midnight deadline.
18 § 5114. Duty and privilege of issuer to honor; right to
19 reimbursement.
20 (a) Duty of issuer to honor draft or demand.--An issuer must
21 honor a draft or demand for payment which complies with the
22 terms of the relevant credit regardless of whether the goods or
23 documents conform to the underlying contract for sale or other
24 contract between the customer and the beneficiary. The issuer is
25 not excused from honor of such a draft or demand by reason of an
26 additional general term that all documents must be satisfactory
27 to the issuer, but an issuer may require that specified
28 documents must be satisfactory to it.
29 (b) Nonconforming document or fraud.--Unless otherwise
30 agreed when documents appear on their face to comply with the
19790S0372B0376 - 203 -
1 terms of a credit but a required document does not in fact
2 conform to the warranties made on negotiation or transfer of a
3 document of title (section 7507) or of a security (section 8306)
4 or is forged or fraudulent or there is fraud in the transaction:
5 (1) the issuer must honor the draft or demand for
6 payment if honor is demanded by a negotiating bank or other
7 holder of the draft or demand which has taken the draft or
8 demand under the credit and under circumstances which would
9 make it a holder in due course (section 3302) and in an
10 appropriate case would make it a person to whom a document of
11 title has been duly negotiated (section 7502) or a bona fide
12 purchaser of a security (section 8302); and
13 (2) in all other cases as against its customer, an
14 issuer acting in good faith may honor the draft or demand for
15 payment despite notification from the customer of fraud,
16 forgery or other defect not apparent on the face of the
17 documents but a court of appropriate jurisdiction may enjoin
18 such honor.
19 (c) Right of issuer to reimbursement.--Unless otherwise
20 agreed an issuer which has duly honored a draft or demand for
21 payment is entitled to immediate reimbursement of any payment
22 made under the credit and to be put in effectively available
23 funds not later than the day before maturity of any acceptance
24 made under the credit.
25 § 5115. Remedy for improper dishonor or anticipatory
26 repudiation.
27 (a) Improper dishonor.--When an issuer wrongfully dishonors
28 a draft or demand for payment presented under a credit the
29 person entitled to honor has with respect to any documents the
30 rights of a person in the position of a seller (section 2707)
19790S0372B0376 - 204 -
1 and may recover from the issuer the face amount of the draft or
2 demand together with incidental damages under section 2710
3 (relating to incidental damages of seller) and interest but less
4 any amount realized by resale or other use or disposition of the
5 subject matter of the transaction. In the event no resale or
6 other utilization is made the documents, goods or other subject
7 matter involved in the transaction must be turned over to the
8 issuer on payment of judgment.
9 (b) Anticipatory repudiation.--When an issuer wrongfully
10 cancels or otherwise repudiates a credit before presentment of a
11 draft or demand for payment drawn under it the beneficiary has
12 the rights of a seller after anticipatory repudiation by the
13 buyer under section 2610 (relating to anticipatory repudiation)
14 if he learns of the repudiation in time reasonably to avoid
15 procurement of the required documents. Otherwise the beneficiary
16 has an immediate right of action for wrongful dishonor.
17 § 5116. Transfer and assignment.
18 (a) Right to draw under a credit.--The right to draw under a
19 credit can be transferred or assigned only when the credit is
20 expressly designated as transferable or assignable.
21 (b) Right to proceeds.--Even though the credit specifically
22 states that it is nontransferable or nonassignable the
23 beneficiary may before performance of the conditions of the
24 credit assign his right to proceeds. Such an assignment is an
25 assignment of a contract right under Division 9 (relating to
26 secured transactions) and is governed by that division except
27 that:
28 (1) the assignment is ineffective until the letter of
29 credit or advice of credit is delivered to the assignee which
30 delivery constitutes perfection of the security interest
19790S0372B0376 - 205 -
1 under Division 9;
2 (2) the issuer may honor drafts or demands for payment
3 drawn under the credit until it receives a notification of
4 the assignment signed by the beneficiary which reasonably
5 identifies the credit involved in the assignment and contains
6 a request to pay the assignee; and
7 (3) after what reasonably appears to be such a
8 notification has been received the issuer may without
9 dishonor refuse to accept or pay even to a person otherwise
10 entitled to honor until the letter of credit or advice of
11 credit is exhibited to the issuer.
12 (c) Other rights unaffected.--Except where the beneficiary
13 has effectively assigned his right to draw or his right to
14 proceeds, nothing in this section limits his right to transfer
15 or negotiate drafts or demands drawn under the credit.
16 § 5117. Insolvency of bank holding funds for documentary
17 credit.
18 (a) General rule.--Where an issuer or an advising or
19 confirming bank, or a bank which has for a customer procured
20 issuance of a credit by another bank becomes insolvent before
21 final payment under the credit and the credit is one to which
22 this division is made applicable by section 5102(a)(1) or (2) on
23 scope, the receipt or allocation of funds or collateral to
24 secure or meet obligations under the credit shall have the
25 following results:
26 (1) To the extent of any funds or collateral turned over
27 after or before the insolvency as indemnity against or
28 specifically for the purpose of payment of drafts or demands
29 for payment drawn under the designated credit, the drafts or
30 demands are entitled to payment in preference over depositors
19790S0372B0376 - 206 -
1 or other general creditors of the issuer or bank.
2 (2) On expiration of the credit or surrender of the
3 rights of the beneficiary under it unused any person who has
4 given such funds or collateral is similarly entitled to
5 return thereof.
6 (3) A charge to a general or current account with a bank
7 if specifically consented to for the purpose of indemnity
8 against or payment of drafts or demands for payment drawn
9 under the designated credit falls under the same rules as if
10 the funds had been drawn out in cash and then turned over
11 with specific instructions.
12 (b) Disposition of documents after honor or reimbursement.--
13 After honor or reimbursement under this section the customer or
14 other person for whose account the insolvent bank has acted is
15 entitled to receive the documents involved.
16 DIVISION 6
17 BULK TRANSFERS
18 Chapter
19 61. Bulk Transfers
20 CHAPTER 61
21 BULK TRANSFERS
22 Sec.
23 6101. Short title of division.
24 6102. "Bulk transfer"; transfers of equipment; enterprises and
25 bulk transfers subject to division.
26 6103. Transfers excepted from division.
27 6104. Schedule of property; list of creditors.
28 6105. Notice to creditors.
29 6106. Application of proceeds.
30 6107. The notice.
19790S0372B0376 - 207 -
1 6108. Auction sales; "auctioneer."
2 6109. What creditors protected.
3 6110. Subsequent transfers.
4 6111. Limitation of actions and levies.
5 § 6101. Short title of division.
6 This division shall be known and may be cited as the "Uniform
7 Commercial Code--Bulk Transfers."
8 § 6102. "Bulk transfer"; transfers of equipment; enterprises
9 and bulk transfers subject to division.
10 (a) Definition of "bulk transfer".--A "bulk transfer" is any
11 transfer in bulk and not in the ordinary course of the business
12 of the transferor, of a major part of the materials, supplies,
13 merchandise or other inventory (section 9109) of an enterprise
14 subject to this division.
15 (b) Transfer of equipment as bulk transfer.--A transfer of a
16 substantial part of the equipment (section 9109) of such an
17 enterprise is a bulk transfer if it is made in connection with a
18 bulk transfer of inventory, but not otherwise.
19 (c) Enterprises subject to division.--The enterprises
20 subject to this division are all those whose principal business
21 is the sale of merchandise from stock, including those who
22 manufacture what they sell.
23 (d) Bulk transfers subject to division.--Except as limited
24 by section 6103 (relating to transfers excepted from division)
25 all bulk transfers of goods located within this Commonwealth are
26 subject to this division.
27 § 6103. Transfers excepted from division.
28 The following transfers are not subject to this division:
29 (1) Those made to give security for the performance of
30 an obligation.
19790S0372B0376 - 208 -
1 (2) General assignments for the benefit of all the
2 creditors of the transferor, and subsequent transfers by the
3 assignee thereunder.
4 (3) Transfers in settlement or realization of a lien or
5 other security interest.
6 (4) Sales by executors, administrators, receivers,
7 trustees in bankruptcy, or any public officer under judicial
8 process.
9 (5) Sales made in the course of judicial or
10 administrative proceedings for the dissolution or
11 reorganization of a corporation and of which notice is sent
12 to the creditors of the corporation pursuant to order of the
13 court or administrative agency.
14 (6) Transfers to a person maintaining a known place of
15 business in this Commonwealth who becomes bound to pay the
16 debts of the transferor in full and gives public notice of
17 that fact, and who is solvent after becoming so bound.
18 (7) A transfer to a new business enterprise organized to
19 take over and continue the business, if public notice of the
20 transaction is given and the new enterprise assumes the debts
21 of the transferor and he receives nothing from the
22 transaction except an interest in the new enterprise junior
23 to the claims of creditors.
24 (8) Transfers of property which is exempt from
25 execution.
26 Public notice under paragraph (6) or (7) may be given by
27 publishing once a week for two consecutive weeks in a newspaper
28 of general circulation where the transferor had its principal
29 place of business in this Commonwealth an advertisement
30 including the names and addresses of the transferor and
19790S0372B0376 - 209 -
1 transferee and the effective date of the transfer.
2 § 6104. Schedule of property; list of creditors.
3 (a) Requisites for effective bulk transfer.--Except as
4 provided in section 6108 (relating to auction sales), a bulk
5 transfer subject to this division is ineffective against any
6 creditor of the transferor unless:
7 (1) the transferee requires the transferor to furnish a
8 list of his existing creditors prepared as stated in this
9 section;
10 (2) the parties prepare a schedule of the property
11 transferred sufficient to identify it; and
12 (3) the transferee preserves the list and schedule for
13 six months next following the transfer and permits inspection
14 of either or both and copying therefrom at all reasonable
15 hours by any creditor of the transferor, or files the list
16 and schedule in the office of the prothonotary in the county
17 in which the property was located at the time of transfer.
18 (b) Execution and content of list of creditors.--The list of
19 creditors must be signed and sworn to or affirmed by the
20 transferor or his agent. It must contain the names and business
21 addresses of all creditors of the transferor, with the amounts
22 when known, and also the names of all persons who are known to
23 the transferor to assert claims against him even though such
24 claims are disputed. If the transferor is the obligor of an
25 outstanding issue of bonds, debentures or the like as to which
26 there is an indenture trustee, the list of creditors need
27 include only the name and address of the indenture trustee and
28 the aggregate outstanding principal amount of the issue.
29 (c) Completeness and accuracy of list of creditors.--
30 Responsibility for the completeness and accuracy of the list of
19790S0372B0376 - 210 -
1 creditors rests on the transferor, and the transfer is not
2 rendered ineffective by errors or omissions therein unless the
3 transferee is shown to have had knowledge.
4 § 6105. Notice to creditors.
5 In addition to the requirements of section 6104 (relating to
6 schedule of property; list of creditors), any bulk transfer
7 subject to this division except one made by auction sale
8 (section 6108) is ineffective against any creditor of the
9 transferor unless at least ten days before he takes possession
10 of the goods or pays for them, whichever happens first, the
11 transferee gives notice of the transfer in the manner and to the
12 persons hereafter provided (section 6107).
13 § 6106. Application of proceeds.
14 In addition to the requirements of section 6104 (relating to
15 schedule of property; list of creditors) and section 6105
16 (relating to notice to creditors):
17 (1) Upon every bulk transfer subject to this division
18 for which new consideration becomes payable except those made
19 by sale at auction it is the duty of the transferee to assure
20 that such consideration is applied so far as necessary to pay
21 those debts of the transferor which are either shown on the
22 list furnished by the transferor (section 6104) or filed in
23 writing in the place stated in the notice (section 6107)
24 within 30 days after the mailing of such notice. This duty of
25 the transferee runs to all the holders of such debts, and may
26 be enforced by any of them for the benefit of all.
27 (2) If any of said debts are in dispute the necessary
28 sum may be withheld from distribution until the dispute is
29 settled or adjudicated.
30 (3) If the consideration payable is not enough to pay
19790S0372B0376 - 211 -
1 all of the debts in full distribution shall be made according
2 to the following order of preferences:
3 (i) State, county, municipal, township and school
4 district tax claims and State Unemployment Compensation
5 Fund claims on a pro rata basis.
6 (ii) All other creditors on a pro rata basis.
7 (4) The transferee may within ten days after he takes
8 possession of the goods pay the consideration into the court
9 of common pleas in the county where the transferor had its
10 principal place of business in this Commonwealth and
11 thereafter may discharge his duty under this section by
12 giving notice by registered or certified mail to all the
13 persons to whom the duty runs that the consideration has been
14 paid into that court and that they should file their claims
15 there. On motion of any interested party, the court may order
16 the distribution of the consideration to the persons entitled
17 to it.
18 § 6107. The notice.
19 (a) Contents of notice to creditors.--The notice to
20 creditors (section 6105) shall state:
21 (1) That a bulk transfer is about to be made.
22 (2) The names and business addresses of the transferor
23 and transferee, and all other business names and addresses
24 used by the transferor within three years last past so far as
25 known to the transferee.
26 (3) Whether or not all the debts of the transferor are
27 to be paid in full as they fall due as a result of the
28 transaction, and if so, the address to which creditors should
29 send their bills.
30 (b) Additional contents when debts of transferor not paid.--
19790S0372B0376 - 212 -
1 If the debts of the transferor are not to be paid in full as
2 they fall due or if the transferee is in doubt on that point
3 then the notice shall state further:
4 (1) The location and general description of the property
5 to be transferred and the estimated total of the debts of the
6 transferor.
7 (2) The address where the schedule of property and list
8 of creditors (section 6104) may be inspected.
9 (3) Whether the transfer is to pay existing debts and if
10 so the amount of such debts and to whom owing.
11 (4) Whether the transfer is for new consideration and if
12 so the amount of such consideration and the time and place of
13 payment.
14 (5) If for new consideration the time and place where
15 creditors of the transferor are to file their claims.
16 (c) Delivery of notice.--The notice in any case shall be
17 delivered personally or sent by registered or certified mail to
18 all the persons shown on the list of creditors furnished by the
19 transferor (section 6104) and to all other persons who are known
20 to the transferee to hold or assert claims against the
21 transferor.
22 § 6108. Auction sales; "auctioneer."
23 (a) Bulk transfer by auction subject to division.--A bulk
24 transfer is subject to this division even though it is by sale
25 at auction, but only in the manner and with the results stated
26 in this section.
27 (b) Duties of transferor.--The transferor shall furnish a
28 list of his creditors and assist in the preparation of a
29 schedule of the property to be sold, both prepared as before
30 stated (section 6104).
19790S0372B0376 - 213 -
1 (c) Definition and duties of "auctioneer".--The person or
2 persons other than the transferor who direct, control or are
3 responsible for the auction are collectively called the
4 "auctioneer." The auctioneer shall:
5 (1) receive and retain the list of creditors and prepare
6 and retain the schedule of property for the period stated in
7 this division (section 6104);
8 (2) give notice of the auction personally or by
9 registered or certified mail at least ten days before it
10 occurs to all persons shown on the list of creditors and to
11 all other persons who are known to him to hold or assert
12 claims against the transferor; and
13 (3) assure that the net proceeds of the auction are
14 applied as provided in this division (section 6106).
15 (d) Effect of failure of auctioneer to perform duties.--
16 Failure of the auctioneer to perform any of these duties does
17 not affect the validity of the sale or the title of the
18 purchasers, but if the auctioneer knows that the auction
19 constitutes a bulk transfer such failure renders the auctioneer
20 liable to the creditors of the transferor as a class for the
21 sums owing to them from the transferor up to but not exceeding
22 the net proceeds of the auction. If the auctioneer consists of
23 several persons their liability is joint and several.
24 § 6109. What creditors protected.
25 The creditors of the transferor mentioned in this division
26 are those holding claims based on transactions or events
27 occurring before the bulk transfer, but creditors who become
28 such after notice to creditors is given (sections 6105 and 6107)
29 are not entitled to notice.
30 § 6110. Subsequent transfers.
19790S0372B0376 - 214 -
1 When the title of a transferee to property is subject to a
2 defect by reason of his noncompliance with the requirements of
3 this division, then:
4 (1) a purchaser of any of such property from such
5 transferee who pays no value or who takes with notice of such
6 noncompliance takes subject to such defect; but
7 (2) a purchaser for value in good faith and without such
8 notice takes free of such defect.
9 § 6111. Limitation of actions and levies.
10 No action under this division shall be brought nor levy made
11 more than six months after the date on which the transferee took
12 possession of the goods unless the transfer has been concealed.
13 If the transfer has been concealed, actions may be brought or
14 levies made within six months after its discovery.
15 DIVISION 7
16 WAREHOUSE RECEIPTS, BILLS OF LADING
17 AND OTHER DOCUMENTS OF TITLE
18 Chapter
19 71. General
20 72. Warehouse Receipts: Special Provisions
21 73. Bills of Lading: Special Provisions
22 74. Warehouse Receipts and Bills of Lading: General
23 Obligations
24 75. Warehouse Receipts and Bills of Lading: Negotiation
25 and Transfer
26 76. Warehouse Receipts and Bills of Lading: Miscellaneous
27 Provisions
28 CHAPTER 71
29 GENERAL
30 Sec.
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1 7101. Short title of division.
2 7102. Definitions and index of definitions.
3 7103. Relation of division to treaty, statute, tariff,
4 classification or regulation.
5 7104. Negotiable and nonnegotiable warehouse receipt, bill
6 of lading or other document of title.
7 7105. Construction against negative implication.
8 § 7101. Short title of division.
9 This division shall be known and may be cited as the "Uniform
10 Commercial Code--Documents of Title."
11 § 7102. Definitions and index of definitions.
12 (a) Definitions.--The following words and phrases when used
13 in this division shall have, unless the context clearly
14 indicates otherwise, the meanings given to them in this
15 subsection:
16 "Bailee." The person who by a warehouse receipt, bill of
17 lading or other document of title acknowledges possession of
18 goods and contracts to deliver them.
19 "Consignee." The person named in a bill to whom or to whose
20 order the bill promises delivery.
21 "Consignor." The person named in a bill as the person from
22 whom the goods have been received for shipment.
23 "Delivery order." A written order to deliver goods directed
24 to a warehouseman, carrier or other person who in the ordinary
25 course of business issues warehouse receipts or bills of lading.
26 "Document." Document of title as defined in section 1201
27 (relating to general definitions).
28 "Goods." All things which are treated as movable for the
29 purposes of a contract of storage or transportation.
30 "Issuer." A bailee who issues a document except that in
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1 relation to an unaccepted delivery order it means the person who
2 orders the possessor of goods to deliver. Issuer includes any
3 person for whom an agent or employee purports to act in issuing
4 a document if the agent or employee has real or apparent
5 authority to issue documents, notwithstanding that the issuer
6 received no goods or that the goods were misdescribed or that in
7 any other respect the agent or employee violated his
8 instructions.
9 "Warehouseman." A person engaged in the business of storing
10 goods for hire.
11 (b) Index of other definitions in division.--Other
12 definitions applying to this division or to specified chapters
13 thereof, and the sections in which they appear are:
14 "Duly negotiate." Section 7501.
15 "Person entitled under the document." Section 7403(d).
16 (c) Index of definitions in other divisions.--Definitions in
17 other divisions applying to this division and the sections in
18 which they appear are:
19 "Contract for sale." Section 2106.
20 "Overseas." Section 2323.
21 "Receipt" of goods. Section 2103.
22 (d) Applicability of general definitions and principles.--In
23 addition Division 1 (relating to general provisions) contains
24 general definitions and principles of construction and
25 interpretation applicable throughout this division.
26 § 7103. Relation of division to treaty, statute, tariff,
27 classification or regulation.
28 To the extent that any treaty or statute of the United
29 States, regulatory statute of this Commonwealth or tariff,
30 classification or regulation filed or issued pursuant thereto is
19790S0372B0376 - 217 -
1 applicable, the provisions of this division are subject thereto.
2 § 7104. Negotiable and nonnegotiable warehouse receipt, bill
3 of lading or other document of title.
4 (a) Negotiable document of title.--A warehouse receipt, bill
5 of lading or other document of title is negotiable:
6 (1) if by its terms the goods are to be delivered to
7 bearer or to the order of a named person; or
8 (2) where recognized in overseas trade, if it runs to a
9 named person or assigns.
10 (b) Nonnegotiable document of title.--Any other document is
11 nonnegotiable. A bill of lading in which it is stated that the
12 goods are consigned to a named person is not made negotiable by
13 a provision that the goods are to be delivered only against a
14 written order signed by the same or another named person.
15 § 7105. Construction against negative implication.
16 The omission from either Chapter 72 (relating to warehouse
17 receipts: special provisions) or Chapter 73 (relating to bills
18 of lading: special provisions) of a provision corresponding to a
19 provision made in the other chapter does not imply that a
20 corresponding rule of law is not applicable.
21 CHAPTER 72
22 WAREHOUSE RECEIPTS: SPECIAL PROVISIONS
23 Sec.
24 7201. Who may issue warehouse receipt; storage under
25 government bond.
26 7202. Form of warehouse receipt; essential terms; optional
27 terms.
28 7203. Liability for nonreceipt or misdescription.
29 7204. Duty of care; contractual limitation of liability of
30 warehouseman.
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1 7205. Title under warehouse receipt defeated in certain cases.
2 7206. Termination of storage at option of warehouseman.
3 7207. Goods must be kept separate; fungible goods.
4 7208. Altered warehouse receipts.
5 7209. Lien of warehouseman.
6 7210. Enforcement of lien of warehouseman.
7 § 7201. Who may issue warehouse receipt; storage under
8 government bond.
9 (a) Who may issue warehouse receipt.--A warehouse receipt
10 may be issued by any warehouseman.
11 (b) Storage under government bond.--Where goods including
12 distilled spirits and agricultural commodities are stored under
13 a statute requiring a bond against withdrawal or a license for
14 the issuance of receipts in the nature of warehouse receipts, a
15 receipt issued for the goods has like effect as a warehouse
16 receipt even though issued by a person who is the owner of the
17 goods and is not a warehouseman.
18 § 7202. Form of warehouse receipt; essential terms; optional
19 terms.
20 (a) Form of warehouse receipt.--A warehouse receipt need not
21 be in any particular form.
22 (b) Essential terms.--Unless a warehouse receipt embodies
23 within its written or printed terms each of the following, the
24 warehouseman is liable for damages caused by the omission to a
25 person injured thereby:
26 (1) The location of the warehouse where the goods are
27 stored.
28 (2) The date of issue of the receipt.
29 (3) The consecutive number of the receipt.
30 (4) A statement whether the goods received will be
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1 delivered to the bearer, to a specified person, or to a
2 specified person or his order.
3 (5) The rate of storage and handling charges, except
4 that where goods are stored under a field warehousing
5 arrangement a statement of that fact is sufficient on a
6 nonnegotiable receipt.
7 (6) A description of the goods or of the packages
8 containing them.
9 (7) The signature of the warehouseman, which may be made
10 by his authorized agent.
11 (8) If the receipt is issued for goods of which the
12 warehouseman is owner, either solely or jointly or in common
13 with others, the fact of such ownership.
14 (9) A statement of the amount of advances made and of
15 liabilities incurred for which the warehouseman claims a lien
16 or security interest (section 7209 (relating to lien of
17 warehouseman)). If the precise amount of such advances made
18 or of such liabilities incurred is, at the time of the issue
19 of the receipt, unknown to the warehouseman or to his agent
20 who issues it, a statement of the fact that advances have
21 been made or liabilities incurred and the purpose thereof is
22 sufficient.
23 (c) Optional terms.--A warehouseman may insert in his
24 receipt any other terms which are not contrary to the provisions
25 of this title and do not impair his obligation of delivery
26 (section 7403) or his duty of care (section 7204). Any contrary
27 provisions shall be ineffective.
28 § 7203. Liability for nonreceipt or misdescription.
29 A party to or purchaser for value in good faith of a document
30 of title other than a bill of lading relying in either case upon
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1 the description therein of the goods, may recover from the
2 issuer damages caused by the nonreceipt or misdescription of the
3 goods, except to the extent that the document conspicuously
4 indicates that the issuer does not know whether any part or all
5 of the goods in fact were received or conform to the
6 description, as where the description is in terms of marks or
7 labels or kind, quantity or condition, or the receipt or
8 description is qualified by "contents, condition and quality
9 unknown," "said to contain" or the like, if such indication be
10 true, or the party or purchaser otherwise has notice.
11 § 7204. Duty of care; contractual limitation of liability of
12 warehouseman.
13 (a) Duty of care.--A warehouseman is liable for damages for
14 loss of or injury to the goods caused by his failure to exercise
15 such care in regard to them as a reasonably careful man would
16 exercise under like circumstances but unless otherwise agreed he
17 is not liable for damages which could not have been avoided by
18 the exercise of such care.
19 (b) Contractual limitation of liability.--Damages may be
20 limited by a term in the warehouse receipt or storage agreement
21 limiting the amount of liability in case of loss or damage, and
22 setting forth a specific liability per article or item, or value
23 per unit of weight beyond which the warehouseman shall not be
24 liable; provided, however, that such liability may on written
25 request of the bailor at the time of signing such storage
26 agreement or within a reasonable time after receipt of the
27 warehouse receipt be increased on part or all of the goods
28 thereunder, in which event increased rates may be charged based
29 on such increased valuation, but that no such increase shall be
30 permitted contrary to a lawful limitation of liability contained
19790S0372B0376 - 221 -
1 in the tariff of the warehouseman, if any. No such limitation is
2 effective with respect to the liability of the warehouseman for
3 conversion to his own use.
4 (c) Provisions for presenting claims and instituting
5 actions.--Reasonable provisions as to the time and manner of
6 presenting claims and instituting actions based on the bailment
7 may be included in the warehouse receipt or tariff.
8 § 7205. Title under warehouse receipt defeated in certain
9 cases.
10 A buyer in the ordinary course of business of fungible goods
11 sold and delivered by a warehouseman who is also in the business
12 of buying and selling such goods takes free of any claim under a
13 warehouse receipt even though it has been duly negotiated.
14 § 7206. Termination of storage at option of warehouseman.
15 (a) General rule.--A warehouseman may on notifying the
16 person on whose account the goods are held and any other person
17 known to claim an interest in the goods require payment of any
18 charges and removal of the goods from the warehouse at the
19 termination of the period of storage fixed by the document, or,
20 if no period is fixed within a stated period not less than 30
21 days after the notification. If the goods are not removed before
22 the date specified in the notification, the warehouseman may
23 sell them in accordance with the provisions of section 7210
24 (relating to enforcement of lien of warehouseman).
25 (b) Goods about to decline in value.--If a warehouseman in
26 good faith believes that the goods are about to deteriorate or
27 decline in value to less than the amount of his lien within the
28 time prescribed in subsection (a) for notification,
29 advertisement and sale, the warehouseman may specify in the
30 notification any reasonable shorter time for removal of the
19790S0372B0376 - 222 -
1 goods and in case the goods are not removed, may sell them at
2 public sale held not less than one week after a single
3 advertisement or posting.
4 (c) Hazardous goods.--If as a result of a quality or
5 condition of the goods of which the warehouseman had no notice
6 at the time of deposit the goods are a hazard to other property
7 or to the warehouse or to persons, the warehouseman may sell the
8 goods at public or private sale without advertisement on
9 reasonable notification to all persons known to claim an
10 interest in the goods. If the warehouseman after a reasonable
11 effort is unable to sell the goods he may dispose of them in any
12 lawful manner and shall incur no liability by reason of such
13 disposition.
14 (d) Delivery of goods upon demand.--The warehouseman must
15 deliver the goods to any person entitled to them under this
16 division upon due demand made at any time prior to sale or other
17 disposition under this section.
18 (e) Disposition of proceeds of sale.--The warehouseman may
19 satisfy his lien from the proceeds of any sale or disposition
20 under this section but must hold the balance for delivery on the
21 demand of any person to whom he would have been bound to deliver
22 the goods.
23 § 7207. Goods must be kept separate; fungible goods.
24 (a) General rule.--Unless the warehouse receipt otherwise
25 provides, a warehouseman must keep separate the goods covered by
26 each receipt so as to permit at all times identification and
27 delivery of those goods except that different lots of fungible
28 goods may be commingled.
29 (b) Commingled fungible goods.--Fungible goods so commingled
30 are owned in common by the persons entitled thereto and the
19790S0372B0376 - 223 -
1 warehouseman is severally liable to each owner for the share of
2 that owner. Where because of overissue a mass of fungible goods
3 is insufficient to meet all the receipts which the warehouseman
4 has issued against it, the persons entitled include all holders
5 to whom overissued receipts have been duly negotiated.
6 § 7208. Altered warehouse receipts.
7 Where a blank in a negotiable warehouse receipt has been
8 filled in without authority, a purchaser for value and without
9 notice of the want of authority may treat the insertion as
10 authorized. Any other unauthorized alteration leaves any receipt
11 enforceable against the issuer according to its original tenor.
12 § 7209. Lien of warehouseman.
13 (a) Charges and expenses covered by lien.--A warehouseman
14 has a lien against the bailor on the goods covered by a
15 warehouse receipt or on the proceeds thereof in his possession
16 for charges for storage or transportation (including demurrage
17 and terminal charges), insurance, labor, or charges present or
18 future in relation to the goods, and for expenses necessary for
19 preservation of the goods or reasonably incurred in their sale
20 pursuant to law. If the person on whose account the goods are
21 held is liable for like charges or expenses in relation to other
22 goods whenever deposited and it is stated in the receipt that a
23 lien is claimed for charges and expenses in relation to other
24 goods, the warehouseman also has a lien against him for such
25 charges and expenses whether or not the other goods have been
26 delivered by the warehouseman. But against a person to whom a
27 negotiable warehouse receipt is duly negotiated the lien of a
28 warehouseman is limited to charges in an amount or at a rate
29 specified on the receipt or if no charges are so specified then
30 to a reasonable charge for storage of the goods covered by the
19790S0372B0376 - 224 -
1 receipt subsequent to the date of the receipt.
2 (b) Reservation of security interest for other charges.--The
3 warehouseman may also reserve a security interest against the
4 bailor for a maximum amount specified on the receipt for charges
5 other than those specified in subsection (a), such as for money
6 advanced and interest. Such a security interest is governed by
7 Division 9 (relating to secured transactions).
8 (c) Other persons against whom lien or security interest
9 effective.--The lien of a warehouseman for charges and expenses
10 under subsection (a) or a security interest under subsection (b)
11 is also effective against any person who so entrusted the bailor
12 with possession of the goods that a pledge of them by him to a
13 good faith purchaser for value would have been valid but is not
14 effective against a person as to whom the document confers no
15 right in the goods covered by it under section 7503 (relating to
16 document of title to goods defeated in certain cases).
17 (d) Loss of lien.--A warehouseman loses his lien on any
18 goods which he voluntarily delivers or which he unjustifiably
19 refuses to deliver.
20 § 7210. Enforcement of lien of warehouseman.
21 (a) Sale of goods to enforce lien.--Except as provided in
22 subsection (b), the lien of a warehouseman may be enforced by
23 public or private sale of the goods in block or in parcels, at
24 any time or place and on any terms which are commercially
25 reasonable, after notifying all persons known to claim an
26 interest in the goods. Such notification must include a
27 statement of the amount due, the nature of the proposed sale and
28 the time and place of any public sale. The fact that a better
29 price could have been obtained by a sale at a different time or
30 in a different method from that selected by the warehouseman is
19790S0372B0376 - 225 -
1 not of itself sufficient to establish that the sale was not made
2 in a commercially reasonable manner. If the warehouseman either
3 sells the goods in the usual manner in any recognized market
4 therefor, or if he sells at the price current in such market at
5 the time of his sale, or if he has otherwise sold in conformity
6 with commercially reasonable practices among dealers in the type
7 of goods sold, he has sold in a commercially reasonable manner.
8 A sale of more goods than apparently necessary to be offered to
9 insure satisfaction of the obligation is not commercially
10 reasonable except in cases covered by the preceding sentence.
11 (b) Procedure for enforcement of lien.--The lien of a
12 warehouseman on goods other than goods stored by a merchant in
13 the course of his business may be enforced only as follows:
14 (1) All persons known to claim an interest in the goods
15 must be notified.
16 (2) The notification must be delivered in person or sent
17 by registered or certified letter to the last known address
18 of any person to be notified.
19 (3) The notification must include an itemized statement
20 of the claim, a description of the goods subject to the lien,
21 a demand for payment within a specified time not less than
22 ten days after receipt of the notification, and a conspicuous
23 statement that unless the claim is paid within that time the
24 goods will be advertised for sale and sold by auction at a
25 specified time and place.
26 (4) The sale must conform to the terms of the
27 notification.
28 (5) The sale must be held at the nearest suitable place
29 to that where the goods are held or stored.
30 (6) After the expiration of the time given in the
19790S0372B0376 - 226 -
1 notification, an advertisement of the sale must be published
2 once a week for two weeks consecutively in a newspaper of
3 general circulation where the sale is to be held. The
4 advertisement must include a description of the goods, the
5 name of the person on whose account they are being held, and
6 the time and place of the sale. The sale must take place at
7 least 15 days after the first publication. If there is no
8 newspaper of general circulation where the sale is to be held
9 the advertisement must be posted at least ten days before the
10 sale in not less than six conspicuous places in the
11 neighborhood of the proposed sale.
12 (c) Satisfaction of lien prior to sale.--Before any sale
13 pursuant to this section any person claiming a right in the
14 goods may pay the amount necessary to satisfy the lien and the
15 reasonable expenses incurred under this section. In that event
16 the goods must not be sold, but must be retained by the
17 warehouseman subject to the terms of the receipt and this
18 division.
19 (d) Warehouseman may purchase at public sale.--The
20 warehouseman may buy at any public sale pursuant to this
21 section.
22 (e) Rights acquired by good faith purchaser.--A purchaser in
23 good faith of goods sold to enforce the lien of a warehouseman
24 takes the goods free of any rights of persons against whom the
25 lien was valid, despite noncompliance by the warehouseman with
26 the requirements of this section.
27 (f) Disposition of proceeds of sale.--The warehouseman may
28 satisfy his lien from the proceeds of any sale pursuant to this
29 section but must hold the balance, if any, for delivery on
30 demand to any person to whom he would have been bound to deliver
19790S0372B0376 - 227 -
1 the goods.
2 (g) Rights under section not exclusive.--The rights provided
3 by this section shall be in addition to all other rights allowed
4 by law to a creditor against his debtor.
5 (h) Lien on goods stored by merchant in course of
6 business.--Where a lien is on goods stored by a merchant in the
7 course of his business the lien may be enforced in accordance
8 with either subsection (a) or (b).
9 (i) Liability of warehouseman for noncompliance.--The
10 warehouseman is liable for damages caused by failure to comply
11 with the requirements for sale under this section and in case of
12 willful violation is liable for conversion.
13 CHAPTER 73
14 BILLS OF LADING: SPECIAL PROVISIONS
15 Sec.
16 7301. Liability for nonreceipt or misdescription; "said to
17 contain"; "shipper's load and count"; improper handling.
18 7302. Through bills of lading and similar documents.
19 7303. Diversion; reconsignment; change of instructions.
20 7304. Bills of lading in a set.
21 7305. Destination bills.
22 7306. Altered bills of lading.
23 7307. Lien of carrier.
24 7308. Enforcement of lien of carrier.
25 7309. Duty of care; contractual limitation of liability of
26 carrier.
27 § 7301. Liability for nonreceipt or misdescription; "said to
28 contain"; shipper's load and count"; improper handling.
29 (a) Liability of issuer for nonreceipt or misdescription.--A
30 consignee of a nonnegotiable bill who has given value in good
19790S0372B0376 - 228 -
1 faith or a holder to whom a negotiable bill has been duly
2 negotiated relying in either case upon the description therein
3 of the goods, or upon the date therein shown, may recover from
4 the issuer damages caused by the misdating of the bill or the
5 nonreceipt or misdescription of the goods, except to the extent
6 that the document indicates that the issuer does not know
7 whether any part or all of the goods in fact were received or
8 conform to the description, as where the description is in terms
9 of marks or labels or kind, quantity, or condition or the
10 receipt or description is qualified by "contents or condition of
11 contents of packages unknown," "said to contain," "shipper's
12 weight, load and count" or the like, if such indication be true.
13 (b) Duty of carrier issuer loading goods.--When goods are
14 loaded by an issuer who is a common carrier, the issuer must
15 count the packages of goods if package freight and ascertain the
16 kind and quantity if bulk freight. In such cases "shipper's
17 weight, load and count" or other words indicating that the
18 description was made by the shipper are ineffective except as to
19 freight concealed by packages.
20 (c) Duty of carrier issuer when freight loaded by shipper.--
21 When bulk freight is loaded by a shipper who makes available to
22 the issuer adequate facilities for weighing such freight, an
23 issuer who is a common carrier must ascertain the kind and
24 quantity within a reasonable time after receiving the written
25 request of the shipper to do so. In such cases "shipper's
26 weight" or other words of like purport are ineffective.
27 (d) Liability of issuer for improper loading.--The issuer
28 may by inserting in the bill the words "shipper's weight, load
29 and count" or other words of like purport indicate that the
30 goods were loaded by the shipper; and if such statement be true
19790S0372B0376 - 229 -
1 the issuer shall not be liable for damages caused by the
2 improper loading. But their omission does not imply liability
3 for such damages.
4 (e) Guaranty of shipper.--The shipper shall be deemed to
5 have guaranteed to the issuer the accuracy at the time of
6 shipment of the description, marks, labels, number, kind,
7 quantity, condition and weight, as furnished by him; and the
8 shipper shall indemnify the issuer against damage caused by
9 inaccuracies in such particulars. The right of the issuer to
10 such indemnity shall in no way limit his responsibility and
11 liability under the contract of carriage to any person other
12 than the shipper.
13 § 7302. Through bills of lading and similar documents.
14 (a) Liability of issuer for acts of other persons.--The
15 issuer of a through bill of lading or other document embodying
16 an undertaking to be performed in part by persons acting as its
17 agents or by connecting carriers is liable to anyone entitled to
18 recover on the document for any breach by such other persons or
19 by a connecting carrier of its obligation under the document but
20 to the extent that the bill covers an undertaking to be
21 performed overseas or in territory not contiguous to the
22 continental United States or an undertaking including matters
23 other than transportation this liability may be varied by
24 agreement of the parties.
25 (b) Other person subjected to obligation of issuer.--Where
26 goods covered by a through bill of lading or other document
27 embodying an undertaking to be performed in part by persons
28 other than the issuer are received by any such person, he is
29 subject with respect to his own performance while the goods are
30 in his possession to the obligation of the issuer. His
19790S0372B0376 - 230 -
1 obligation is discharged by delivery of the goods to another
2 such person pursuant to the document, and does not include
3 liability for breach by any other such persons or by the issuer.
4 (c) Recovery by issuer against other persons.--The issuer of
5 such through bill of lading or other document shall be entitled
6 to recover from the connecting carrier or such other person in
7 possession of the goods when the breach of the obligation under
8 the document occurred, the amount it may be required to pay to
9 anyone entitled to recover on the document therefor, as may be
10 evidenced by any receipt, judgment, or transcript thereof, and
11 the amount of any expense reasonably incurred by it in defending
12 any action brought by anyone entitled to recover on the document
13 therefor.
14 § 7303. Diversion; reconsignment; change of instructions.
15 (a) General rule.--Unless the bill of lading otherwise
16 provides, the carrier may deliver the goods to a person or
17 destination other than that stated in the bill or may otherwise
18 dispose of the goods on instructions from:
19 (1) the holder of a negotiable bill;
20 (2) the consignor on a nonnegotiable bill
21 notwithstanding contrary instructions from the consignee;
22 (3) the consignee on a nonnegotiable bill in the absence
23 of contrary instructions from the consignor, if the goods
24 have arrived at the billed destination or if the consignee is
25 in possession of the bill; or
26 (4) the consignee on a nonnegotiable bill if he is
27 entitled as against the consignor to dispose of them.
28 (b) Liability of bailee when instructions not on document.--
29 Unless such instructions are noted on a negotiable bill of
30 lading, a person to whom the bill is duly negotiated can hold
19790S0372B0376 - 231 -
1 the bailee according to the original terms.
2 § 7304. Bills of lading in a set.
3 (a) General rule.--Except where customary in overseas
4 transportation, a bill of lading must not be issued in a set of
5 parts. The issuer is liable for damages caused by violation of
6 this subsection.
7 (b) Set of parts constitutes one bill.--Where a bill of
8 lading is lawfully drawn in a set of parts, each of which is
9 numbered and expressed to be valid only if the goods have not
10 been delivered against any other part, the whole of the parts
11 constitute one bill.
12 (c) Negotiation of parts of set to different persons.--Where
13 a bill of lading is lawfully issued in a set of parts and
14 different parts are negotiated to different persons, the title
15 of the holder to whom the first due negotiation is made prevails
16 as to both the document and the goods even though any later
17 holder may have received the goods from the carrier in good
18 faith and discharged the obligation of the carrier by surrender
19 of his part.
20 (d) Liability for negotiation of single part of set.--Any
21 person who negotiates or transfers a single part of a bill of
22 lading drawn in a set is liable to holders of that part as if it
23 were the whole set.
24 (e) Duty of bailee upon presentation of part of set.--The
25 bailee is obliged to deliver in accordance with Chapter 74
26 (relating to warehouse receipts and bills of lading: general
27 obligations) against the first presented part of a bill of
28 lading lawfully drawn in a set. Such delivery discharges the
29 obligation of the bailee on the whole bill.
30 § 7305. Destination bills.
19790S0372B0376 - 232 -
1 (a) Destination bill procured by carrier.--Instead of
2 issuing a bill of lading to the consignor at the place of
3 shipment a carrier may at the request of the consignor procure
4 the bill to be issued at destination or at any other place
5 designated in the request.
6 (b) Substitute bill procured by issuer.--Upon request of
7 anyone entitled as against the carrier to control the goods
8 while in transit and on surrender of any outstanding bill of
9 lading or other receipt covering such goods, the issuer may
10 procure a substitute bill to be issued at any place designated
11 in the request.
12 § 7306. Altered bills of lading.
13 An unauthorized alteration or filling in of a blank in a bill
14 of lading leaves the bill enforceable according to its original
15 tenor.
16 § 7307. Lien of carrier.
17 (a) Charges and expenses covered by lien.--A carrier has a
18 lien on the goods covered by a bill of lading for charges
19 subsequent to the date of its receipt of the goods for storage
20 or transportation (including demurrage and terminal charges) and
21 for expenses necessary for preservation of the goods or incident
22 to their transportation or reasonably incurred in their sale
23 pursuant to law. But against a purchaser for value of a
24 negotiable bill of lading the lien of a carrier is limited to
25 charges stated in the bill or the applicable tariffs, or if no
26 charges are stated then to a reasonable charge.
27 (b) Persons against whom lien effective.--A lien for charges
28 and expenses under subsection (a) on goods which the carrier was
29 required by law to receive for transportation is effective
30 against the consignor or any person entitled to the goods unless
19790S0372B0376 - 233 -
1 the carrier had notice that the consignor lacked authority to
2 subject the goods to such charges and expenses. Any other lien
3 under subsection (a) is effective against the consignor and any
4 person who permitted the bailor to have control or possession of
5 the goods unless the carrier had notice that the bailor lacked
6 such authority.
7 (c) Loss of lien.--A carrier loses his lien on any goods
8 which he voluntarily delivers or which he unjustifiably refuses
9 to deliver.
10 § 7308. Enforcement of lien of carrier.
11 (a) Sale of goods to enforce lien.--The lien of a carrier
12 may be enforced by public or private sale of the goods, in block
13 or in parcels, at any time or place and on any terms which are
14 commercially reasonable, after notifying all persons known to
15 claim an interest in the goods. Such notification must include a
16 statement of the amount due, the nature of the proposed sale and
17 the time and place of any public sale. The fact that a better
18 price could have been obtained by a sale at a different time or
19 in a different method from that selected by the carrier is not
20 of itself sufficient to establish that the sale was not made in
21 a commercially reasonable manner. If the carrier either sells
22 the goods in the usual manner in any recognized market therefor
23 or if he sells at the price current in such market at the time
24 of his sale or if he has otherwise sold in conformity with
25 commercially reasonable practices among dealers in the type of
26 goods sold he has sold in a commercially reasonable manner. A
27 sale of more goods than apparently necessary to be offered to
28 ensure satisfaction of the obligation is not commercially
29 reasonable except in cases covered by the preceding sentence.
30 (b) Satisfaction of lien prior to sale.--Before any sale
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1 pursuant to this section any person claiming a right in the
2 goods may pay the amount necessary to satisfy the lien and the
3 reasonable expenses incurred under this section. In that event
4 the goods must not be sold, but must be retained by the carrier
5 subject to the terms of the bill and this division.
6 (c) Carrier may purchase at public sale.--The carrier may
7 buy at any public sale pursuant to this section.
8 (d) Rights acquired by good faith purchaser.--A purchaser in
9 good faith of goods sold to enforce the lien of a carrier takes
10 the goods free of any rights of persons against whom the lien
11 was valid, despite noncompliance by the carrier with the
12 requirements of this section.
13 (e) Disposition of proceeds of sale.--The carrier may
14 satisfy his lien from the proceeds of any sale pursuant to this
15 section but must hold the balance, if any, for delivery on
16 demand to any person to whom he would have been bound to deliver
17 the goods.
18 (f) Rights under section not exclusive.--The rights provided
19 by this section shall be in addition to all other rights allowed
20 by law to a creditor against his debtor.
21 (g) Alternative methods of enforcing lien.--The lien of a
22 carrier may be enforced in accordance with either subsection (a)
23 or the procedure set forth in section 7210(b) (relating to
24 enforcement of lien of warehouseman).
25 (h) Liability of carrier for noncompliance.--The carrier is
26 liable for damages caused by failure to comply with the
27 requirements for sale under this section and in case of willful
28 violation is liable for conversion.
29 § 7309. Duty of care; contractual limitation of liability of
30 carrier.
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1 (a) Duty of care.--A carrier who issues a bill of lading
2 whether negotiable or nonnegotiable must exercise the degree of
3 care in relation to the goods which a reasonably careful man
4 would exercise under like circumstances. This subsection does
5 not repeal or change any law or rule of law which imposes
6 liability upon a common carrier for damages not caused by its
7 negligence.
8 (b) Contractual limitation of liability.--Damages may be
9 limited by a provision that the liability of the carrier shall
10 not exceed a value stated in the document if the rates of the
11 carrier are dependent upon value and the consignor by the tariff
12 of the carrier is afforded an opportunity to declare a higher
13 value or a value as lawfully provided in the tariff, or where no
14 tariff is filed he is otherwise advised of such opportunity; but
15 no such limitation is effective with respect to the liability of
16 the carrier for conversion to its own use.
17 (c) Provisions for presenting claims and instituting
18 actions.--Reasonable provisions as to the time and manner of
19 presenting claims and instituting actions based on the shipment
20 may be included in a bill of lading or tariff.
21 CHAPTER 74
22 WAREHOUSE RECEIPTS AND BILLS OF LADING:
23 GENERAL OBLIGATIONS
24 Sec.
25 7401. Irregularities in issue of receipt or bill or conduct of
26 issuer.
27 7402. Duplicate receipt or bill; overissue.
28 7403. Obligation of warehouseman or carrier to deliver; excuse.
29 7404. No liability for good faith delivery pursuant to receipt
30 or bill.
19790S0372B0376 - 236 -
1 § 7401. Irregularities in issue of receipt or bill or conduct
2 of issuer.
3 The obligations imposed by this division on an issuer apply
4 to a document of title regardless of the fact that:
5 (1) the document may not comply with the requirements of
6 this division or of any other law or regulation regarding its
7 issue, form or content;
8 (2) the issuer may have violated laws regulating the
9 conduct of his business;
10 (3) the goods covered by the document were owned by the
11 bailee at the time the document was issued; or
12 (4) the person issuing the document does not come within
13 the definition of warehouseman if it purports to be a
14 warehouse receipt.
15 § 7402. Duplicate receipt or bill; overissue.
16 Neither a duplicate nor any other document of title
17 purporting to cover goods already represented by an outstanding
18 document of the same issuer confers any right in the goods,
19 except as provided in the case of bills in a set, overissue of
20 documents for fungible goods and substitutes for lost, stolen or
21 destroyed documents. But the issuer is liable for damages caused
22 by his overissue or failure to identify a duplicate document as
23 such by conspicuous notation on its face.
24 § 7403. Obligation of warehouseman or carrier to deliver;
25 excuse.
26 (a) General rule.--The bailee must deliver the goods to a
27 person entitled under the document who complies with subsections
28 (b) and (c), unless and to the extent that the bailee
29 establishes any of the following:
30 (1) Delivery of the goods to a person whose receipt was
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1 rightful as against the claimant.
2 (2) Damage to or delay, loss or destruction of the goods
3 for which the bailee is not liable, but the burden of
4 establishing negligence in such cases is on the person
5 entitled under the document.
6 (3) Previous sale or other disposition of the goods in
7 lawful enforcement of a lien or on lawful termination of
8 storage by a warehouseman.
9 (4) The exercise by a seller of his right to stop
10 delivery pursuant to the provisions of Division 2 (section
11 2705).
12 (5) A diversion, reconsignment or other disposition
13 pursuant to the provisions of this division (section 7303) or
14 tariff regulating such right.
15 (6) Release, satisfaction or any other fact affording a
16 personal defense against the claimant.
17 (7) Any other lawful excuse.
18 (b) Satisfaction of lien.--A person claiming goods covered
19 by a document of title must satisfy the lien of the bailee where
20 the bailee so requests or where the bailee is prohibited by law
21 from delivering the goods until the charges are paid.
22 (c) Surrender of negotiable document.--Unless the person
23 claiming is one against whom the document confers no right under
24 section 7503(a) (relating to document of title to goods defeated
25 in certain cases), he must surrender for cancellation or
26 notation of partial deliveries any outstanding negotiable
27 document covering the goods, and the bailee must cancel the
28 document or conspicuously note the partial delivery thereon or
29 be liable to any person to whom the document is duly negotiated.
30 (d) Definition of "person entitled under the document".--
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1 "Person entitled under the document" means holder in the case of
2 a negotiable document, or the person to whom delivery is to be
3 made by the terms of or pursuant to written instructions under a
4 nonnegotiable document.
5 § 7404. No liability for good faith delivery pursuant to
6 receipt or bill.
7 A bailee who in good faith including observance of reasonable
8 commercial standards has received goods and delivered or
9 otherwise disposed of them according to the terms of the
10 document of title or pursuant to this division is not liable
11 therefor. This rule applies even though the person from whom he
12 received the goods had no authority to procure the document or
13 to dispose of the goods and even though the person to whom he
14 delivered the goods had no authority to receive them.
15 CHAPTER 75
16 WAREHOUSE RECEIPTS AND BILLS OF LADING:
17 NEGOTIATION AND TRANSFER
18 Sec.
19 7501. Form of negotiation and requirements of "due
20 negotiation."
21 7502. Rights acquired by due negotiation.
22 7503. Document of title to goods defeated in certain cases.
23 7504. Rights acquired in absence of due negotiation; effect
24 of diversion; stoppage by seller of delivery.
25 7505. Indorser not guarantor for other parties.
26 7506. Delivery without indorsement: right to compel
27 indorsement.
28 7507. Warranties on negotiation or transfer of receipt or bill.
29 7508. Warranties of collecting bank as to documents.
30 7509. Receipt or bill: when adequate compliance with
19790S0372B0376 - 239 -
1 commercial contract.
2 § 7501. Form of negotiation and requirements of "due
3 negotiation."
4 (a) Negotiation by indorsement and delivery.--A negotiable
5 document of title running to the order of a named person is
6 negotiated by his indorsement and delivery. After his
7 indorsement in blank or to bearer any person can negotiate it by
8 delivery alone.
9 (b) Negotiation by delivery.--
10 (1) A negotiable document of title is also negotiated by
11 delivery alone when by its original terms it runs to bearer.
12 (2) When a document running to the order of a named
13 person is delivered to him the effect is the same as if the
14 document had been negotiated.
15 (c) Negotiation by special indorsee.--Negotiation of a
16 negotiable document of title after it has been indorsed to a
17 specified person requires indorsement by the special indorsee as
18 well as delivery.
19 (d) Definition of "duly negotiated".--A negotiable document
20 of title is "duly negotiated" when it is negotiated in the
21 manner stated in this section to a holder who purchases it in
22 good faith without notice of any defense against or claim to it
23 on the part of any person and for value, unless it is
24 established that the negotiation is not in the regular course of
25 business or financing or involves receiving the document in
26 settlement or payment of a money obligation.
27 (e) Indorsement of nonnegotiable document.--Indorsement of a
28 nonnegotiable document neither makes it negotiable nor adds to
29 the rights of the transferee.
30 (f) Naming person to be notified of arrival of goods.--The
19790S0372B0376 - 240 -
1 naming in a negotiable bill of a person to be notified of the
2 arrival of the goods does not limit the negotiability of the
3 bill nor constitute notice to a purchaser thereof of any
4 interest of such person in the goods.
5 § 7502. Rights acquired by due negotiation.
6 (a) General rule.--Subject to section 7205 (relating to
7 title under warehouse receipt defeated in certain cases) on
8 fungible goods and section 7503 (relating to document of title
9 to goods defeated in certain cases), a holder to whom a
10 negotiable document of title has been duly negotiated acquires
11 thereby:
12 (1) title to the document;
13 (2) title to the goods;
14 (3) all rights accruing under the law of agency or
15 estoppel, including rights to goods delivered to the bailee
16 after the document was issued; and
17 (4) the direct obligation of the issuer to hold or
18 deliver the goods according to the terms of the document free
19 of any defense or claim by him except those arising under the
20 terms of the document or under this division. In the case of
21 a delivery order the obligation of the bailee accrues only
22 upon acceptance and the obligation acquired by the holder is
23 that the issuer and any indorser will procure the acceptance
24 of the bailee.
25 (b) Rights acquired unaffected by certain matters.--Subject
26 to section 7503, title and rights so acquired are not defeated
27 by any stoppage of the goods represented by the document or by
28 surrender of such goods by the bailee, and are not impaired even
29 though the negotiation or any prior negotiation constituted a
30 breach of duty or even though any person has been deprived of
19790S0372B0376 - 241 -
1 possession of the document by misrepresentation, fraud,
2 accident, mistake, duress, loss, theft or conversion, or even
3 though a previous sale or other transfer of the goods or
4 document has been made to a third person.
5 § 7503. Document of title to goods defeated in certain cases.
6 (a) Prior legal or perfected security interest.--A document
7 of title confers no right in goods against a person who before
8 issuance of the document had a legal interest or a perfected
9 security interest in them and who neither:
10 (1) delivered or entrusted them or any document of title
11 covering them to the bailor or his nominee with actual or
12 apparent authority to ship, store or sell or with power to
13 obtain delivery under this division (section 7403 (relating
14 to obligation of warehouseman or carrier to deliver; excuse))
15 or with power of disposition under this title (section 2403
16 (relating to power to transfer; good faith purchase of goods;
17 "entrusting") and section 9307 (relating to protection of
18 buyers of goods)) or other statute or rule of law; nor
19 (2) acquiesced in the procedure by the bailor or his
20 nominee of any document of title.
21 (b) Subordination of title based upon unaccepted delivery
22 order.--Title to goods based upon an unaccepted delivery order
23 is subject to the rights of anyone to whom a negotiable
24 warehouse receipt or bill of lading governing the goods has been
25 duly negotiated. Such a title may be defeated under section 7504
26 (relating to rights acquired in absence of due negotiation;
27 effect of diversion; stoppage by seller of delivery) to the same
28 extent as the rights of the issuer or a transferee from the
29 issuer.
30 (c) Subordination of title based upon bill to freight
19790S0372B0376 - 242 -
1 forwarder.--Title to goods based upon a bill of lading issued to
2 a freight forwarder is subject to the rights of anyone to whom a
3 bill issued by the freight forwarder covering such goods has
4 been duly negotiated; but delivery by the carrier in accordance
5 with Chapter 74 (relating to warehouse receipts and bills of
6 lading: negotiation and transfer) pursuant to its own bill of
7 lading discharges the obligation of the carrier to deliver.
8 § 7504. Rights acquired in absence of due negotiation; effect
9 of diversion; stoppage by seller of delivery.
10 (a) Rights of transferee when document delivered but not
11 negotiated.--A transferee of a document, whether negotiable or
12 nonnegotiable, to whom the document has been delivered but not
13 duly negotiated, acquires the title and rights which his
14 transferor had or had actual authority to convey.
15 (b) Defeat of rights of transferee of nonnegotiable
16 document.--In the case of a nonnegotiable document, until but
17 not after the bailee receives notification of the transfer, the
18 rights of the transferee may be defeated:
19 (1) by those creditors of the transferor who could treat
20 the sale as void under section 2402 (relating to rights of
21 creditors of seller against sold goods);
22 (2) by a buyer from the transferor in ordinary course of
23 business if the bailee has delivered the goods to the buyer
24 or received notification of his rights; or
25 (3) as against the bailee by good faith dealings of the
26 bailee with the transferor.
27 (c) Change of shipping instructions under nonnegotiable
28 document.--A diversion or other change of shipping instructions
29 by the consignor in a nonnegotiable bill of lading which causes
30 the bailee not to deliver to the consignee defeats the title of
19790S0372B0376 - 243 -
1 the consignee to the goods if they have been delivered to a
2 buyer in ordinary course of business and in any event defeats
3 the rights of the consignee against the bailee.
4 (d) Stoppage by seller of delivery under nonnegotiable
5 document.--Delivery pursuant to a nonnegotiable document may be
6 stopped by a seller under section 2705 (relating to stoppage by
7 seller of delivery in transit or otherwise) and subject to the
8 requirement of due notification there provided. A bailee
9 honoring the instructions of the seller is entitled to be
10 indemnified by the seller against any resulting loss or expense.
11 § 7505. Indorser not guarantor for other parties.
12 The indorsement of a document of title issued by a bailee
13 does not make the indorser liable for any default by the bailee
14 or by previous indorsers.
15 § 7506. Delivery without indorsement: right to compel
16 indorsement.
17 The transferee of a negotiable document of title has a
18 specifically enforceable right to have his transferor supply any
19 necessary indorsement but the transfer becomes a negotiation
20 only as of the time the indorsement is supplied.
21 § 7507. Warranties on negotiation or transfer of receipt or
22 bill.
23 Where a person negotiates or transfers a document of title
24 for value otherwise than as a mere intermediary under section
25 7508 (relating to warranties of a collecting bank as to
26 documents), then unless otherwise agreed he warrants to his
27 immediate purchaser only in addition to any warranty made in
28 selling the goods:
29 (1) that the document is genuine;
30 (2) that he has no knowledge of any fact which would
19790S0372B0376 - 244 -
1 impair its validity or worth; and
2 (3) that his negotiation or transfer is rightful and
3 fully effective with respect to the title to the document and
4 the goods it represents.
5 § 7508. Warranties of collecting bank as to documents.
6 A collecting bank or other intermediary known to be entrusted
7 with documents on behalf of another or with collection of a
8 draft or other claim against delivery of documents warrants by
9 such delivery of the documents only its own good faith and
10 authority. This rule applies even though the intermediary has
11 purchased or made advances against the claim or draft to be
12 collected.
13 § 7509. Receipt or bill: when adequate compliance with
14 commercial contract.
15 The question whether a document is adequate to fulfill the
16 obligations of a contract for sale or the conditions of a credit
17 is governed by Division 2 (relating to sales) and Division 5
18 (relating to letters of credit).
19 CHAPTER 76
20 WAREHOUSE RECEIPTS AND BILLS OF LADING:
21 MISCELLANEOUS PROVISIONS
22 Sec.
23 7601. Lost and missing documents.
24 7602. Attachment of goods covered by negotiable document.
25 7603. Conflicting claims; interpleader.
26 § 7601. Lost and missing documents.
27 (a) Delivery of substitute document under court order.--If a
28 document has been lost, stolen or destroyed, a court may order
29 delivery of the goods or issuance of a substitute document and
30 the bailee may without liability to any person comply with such
19790S0372B0376 - 245 -
1 order. If the document was negotiable the claimant must post
2 security approved by the court to indemnify any person who may
3 suffer loss as a result of nonsurrender of the document. If the
4 document was not negotiable, such security may be required at
5 the discretion of the court. The court may also in its
6 discretion order payment of the reasonable costs and counsel
7 fees of the bailee.
8 (b) Liability for delivery without court order.--A bailee
9 who without court order delivers goods to a person claiming
10 under a missing negotiable document is liable to any person
11 injured thereby, and if the delivery is not in good faith
12 becomes liable for conversion. Delivery in good faith is not
13 conversion if made in accordance with a filed classification or
14 tariff or, where no classification or tariff is filed, if the
15 claimant posts security with the bailee in an amount at least
16 double the value of the goods at the time of posting to
17 indemnify any person injured by the delivery who files a notice
18 of claim within one year after the delivery.
19 § 7602. Attachment of goods covered by negotiable document.
20 Except where the document was originally issued upon delivery
21 of the goods by a person who had no power to dispose of them, no
22 lien attaches by virtue of any judicial process to goods in the
23 possession of a bailee for which a negotiable document of title
24 is outstanding unless the document be first surrendered to the
25 bailee or its negotiation enjoined, and the bailee shall not be
26 compelled to deliver the goods pursuant to process until the
27 document is surrendered to him or impounded by the court. One
28 who purchases the document for value without notice of the
29 process or injunction takes free of the lien imposed by judicial
30 process.
19790S0372B0376 - 246 -
1 § 7603. Conflicting claims; interpleader.
2 If more than one person claims title or possession of the
3 goods, the bailee is excused from delivering until he has had a
4 reasonable time to ascertain the validity of the adverse claims
5 or to bring an action to compel all claimants to interplead and
6 may compel such interpleader, either in defending an action for
7 nondelivery of the goods, or by original action, whichever is
8 appropriate.
9 DIVISION 8
10 INVESTMENT SECURITIES
11 Chapter
12 81. Short Title and General Matters
13 82. Issue - Issuer
14 83. Purchase
15 84. Registration
16 CHAPTER 81
17 SHORT TITLE AND GENERAL MATTERS
18 Sec.
19 8101. Short title of division.
20 8102. Definitions and index of definitions.
21 8103. Lien of issuer.
22 8104. Effect of overissue; "overissue."
23 8105. Securities negotiable; presumptions.
24 8106. Applicability.
25 8107. Securities deliverable; action for price.
26 § 8101. Short title of division.
27 This division shall be known and may be cited as the "Uniform
28 Commercial Code--Investment Securities."
29 § 8102. Definitions and index of definitions.
30 (a) Definitions.--The following words and phrases when used
19790S0372B0376 - 247 -
1 in this division shall have, unless the context clearly
2 indicates otherwise, the meanings given to them in this
3 subsection:
4 "Clearing corporation." A corporation:
5 (1) at least 90% of the capital stock of which is held
6 by or for one or more persons (other than individuals) each
7 of whom:
8 (i) is subject to supervision or regulation pursuant
9 to the provisions of Federal or State banking laws or
10 State insurance laws;
11 (ii) is a broker or dealer or investment company
12 registered under the Securities Exchange Act of 1934 or
13 the Investment Company Act of 1940; or
14 (iii) is a national securities exchange or
15 association registered under a statute of the United
16 States such as the Securities Exchange Act of 1934;
17 and none of whom, other than a national securities exchange
18 or association, holds in excess of 20% of the capital stock
19 of such corporation; and
20 (2) any remaining capital stock of which is held by
21 individuals who have purchased such capital stock at or prior
22 to the time of their taking office as directors of such
23 corporation and who have purchased only so much of such
24 capital stock as may be necessary to permit them to qualify
25 as such directors.
26 "Custodian bank." Any bank or trust company which is
27 supervised and examined by State or Federal authority having
28 supervision over banks and which is acting as custodian for a
29 clearing corporation.
30 "Security."
19790S0372B0376 - 248 -
1 (1) A "security" is an instrument which:
2 (i) is issued in bearer or registered form;
3 (ii) is of a type commonly dealt in upon securities
4 exchanges or markets or commonly recognized in any area
5 in which it is issued or dealt in as a medium for
6 investment;
7 (iii) is either one of a class or series or by its
8 terms is divisible into a class or series of instruments;
9 and
10 (iv) evidences a share, participation or other
11 interest in property or in an enterprise or evidences an
12 obligation of the issuer.
13 (2) A writing which is a security is governed by this
14 division and not by Division 3 (relating to commercial paper)
15 even though it also meets the requirements of that division.
16 This division does not apply to money.
17 (3) A security is in "registered form" when it specifies
18 a person entitled to the security or to the rights it
19 evidences and when its transfer may be registered upon books
20 maintained for that purpose by or on behalf of an issuer or
21 the security so states.
22 (4) A security is in "bearer form" when it runs to
23 bearer according to its terms and not by reason of any
24 indorsement.
25 "Subsequent purchaser." A person who takes other than by
26 original issue.
27 (b) Index of other definitions.--Other definitions applying
28 to this division or to specified chapters thereof and the
29 sections in which they appear are:
30 "Adverse claim." Section 8301.
19790S0372B0376 - 249 -
1 "Bona fide purchaser." Section 8302.
2 "Broker." Section 8303.
3 "Guarantee of the signature." Section 8402.
4 "Intermediary bank." Section 4105.
5 "Issuer." Section 8201.
6 "Overissue." Section 8104.
7 (c) Applicability of general definitions and principles.--In
8 addition Division 1 (relating to general provisions) contains
9 general definitions and principles of construction and
10 interpretation applicable throughout this division.
11 § 8103. Lien of issuer.
12 A lien upon a security in favor of an issuer thereof is valid
13 against a purchaser only if the right of the issuer to such lien
14 is noted conspicuously on the security.
15 § 8104. Effect of overissue; "overissue."
16 (a) General rule.--The provisions of this division which
17 validate a security or compel its issue or reissue do not apply
18 to the extent that validation, issue or reissue would result in
19 overissue; but:
20 (1) if an identical security which does not constitute
21 an overissue is reasonably available for purchase, the person
22 entitled to issue or validation may compel the issuer to
23 purchase and deliver such a security to him against surrender
24 of the security, if any, which he holds; or
25 (2) if a security is not so available for purchase, the
26 person entitled to issue or validation may recover from the
27 issuer the price he or the last purchaser for value paid for
28 it with interest from the date of his demand.
29 (b) Definition of "overissue".--"Overissue" means the issue
30 of securities in excess of the amount which the issuer has
19790S0372B0376 - 250 -
1 corporate power to issue.
2 § 8105. Securities negotiable; presumptions.
3 (a) Securities negotiable.--Securities governed by this
4 division are negotiable instruments.
5 (b) Presumptions and burden of proof.--In any action on a
6 security:
7 (1) unless specifically denied in the pleadings, each
8 signature on the security or in a necessary indorsement is
9 admitted;
10 (2) when the effectiveness of a signature is put in
11 issue the burden of establishing it is on the party claiming
12 under the signature but the signature is presumed to be
13 genuine or authorized;
14 (3) when signatures are admitted or established
15 production of the instrument entitles a holder to recover on
16 it unless the defendant establishes a defense or a defect
17 going to the validity of the security; and
18 (4) after it is shown that a defense or defect exists
19 the plaintiff has the burden of establishing that he or some
20 person under whom he claims is a person against whom the
21 defense or defect is ineffective (section 8202 (relating to
22 responsibility and defenses of issuer; notice of defect or
23 defense)).
24 § 8106. Applicability.
25 The validity of a security and the rights and duties of the
26 issuer with respect to registration of transfer are governed by
27 the law (including the conflict of laws rules) of the
28 jurisdiction of organization of the issuer.
29 § 8107. Securities deliverable; action for price.
30 (a) Securities deliverable.--Unless otherwise agreed and
19790S0372B0376 - 251 -
1 subject to any applicable law or regulation respecting short
2 sales, a person obligated to deliver securities may deliver any
3 security of the specified issue in bearer form or registered in
4 the name of the transferee or indorsed to him or in blank.
5 (b) Action for price of securities.--When the buyer fails to
6 pay the price as it comes due under a contract of sale, the
7 seller may recover the price:
8 (1) of securities accepted by the buyer; and
9 (2) of other securities if efforts at their resale would
10 be unduly burdensome or if there is no readily available
11 market for their resale.
12 CHAPTER 82
13 ISSUE - ISSUER
14 Sec.
15 8201. "Issuer."
16 8202. Responsibility and defenses of issuer; notice of defect
17 or defense.
18 8203. Staleness as notice of defects or defenses.
19 8204. Effect of restrictions by issuer on transfer.
20 8205. Effect of unauthorized signature on issue.
21 8206. Completion or alteration of instrument.
22 8207. Rights of issuer with respect to registered owners.
23 8208. Effect of signature of authenticating trustee, registrar
24 or transfer agent.
25 § 8201. "Issuer."
26 (a) General rule.--With respect to obligations on or
27 defenses to a security "issuer" includes a person who:
28 (1) places or authorizes the placing of his name on a
29 security (otherwise than as authenticating trustee,
30 registrar, transfer agent or the like) to evidence that it
19790S0372B0376 - 252 -
1 represents a share, participation or other interest in his
2 property or in an enterprise or to evidence his duty to
3 perform an obligation evidenced by the security;
4 (2) directly or indirectly creates fractional interests
5 in his rights or property which fractional interests are
6 evidenced by securities; or
7 (3) becomes responsible for or in place of any other
8 person described as an issuer in this section.
9 (b) Guarantor.--With respect to obligations on or defenses
10 to a security a guarantor is an issuer to the extent of his
11 guaranty whether or not his obligation is noted on the security.
12 (c) Person for whom transfer books maintained.--With respect
13 to registration of a transfer (Chapter 84) "issuer" means a
14 person on whose behalf transfer books are maintained.
15 § 8202. Responsibility and defenses of issuer; notice of defect
16 or defense.
17 (a) Terms included in security.--Even against a purchaser
18 for value and without notice, the terms of a security include
19 those stated on the security and those made part of the security
20 by reference to another instrument, indenture or document or to
21 a constitution, statute, ordinance, rule, regulation, order or
22 the like to the extent that the terms so referred to do not
23 conflict with the stated terms. Such a reference does not of
24 itself charge a purchaser for value with notice of a defect
25 going to the validity of the security even though the security
26 expressly states that a person accepting it admits such notice.
27 (b) Defect affecting validity of security.--
28 (1) A security other than one issued by a government or
29 governmental agency or unit even though issued with a defect
30 going to its validity is valid in the hands of a purchaser
19790S0372B0376 - 253 -
1 for value and without notice of the particular defect unless
2 the defect involves a violation of constitutional provisions
3 in which case the security is valid in the hands of a
4 subsequent purchaser for value and without notice of the
5 defect.
6 (2) The rule of paragraph (1) applies to an issuer which
7 is a government or governmental agency or unit only if either
8 there has been substantial compliance with the legal
9 requirements governing the issue or the issuer has received a
10 substantial consideration for the issue as a whole or for the
11 particular security and a stated purpose of the issue is one
12 for which the issuer has power to borrow money or issue the
13 security.
14 (c) Lack of genuineness as complete defense.--Except as
15 otherwise provided in the case of certain unauthorized
16 signatures on issue (section 8205), lack of genuineness of a
17 security is a complete defense even against a purchaser for
18 value and without notice.
19 (d) Defenses ineffective against purchaser for value without
20 notice.--All other defenses of the issuer including nondelivery
21 and conditional delivery of the security are ineffective against
22 a purchaser for value who has taken without notice of the
23 particular defense.
24 (e) Right to cancel certain contracts unaffected.--Nothing
25 in this section shall be construed to affect the right of a
26 party to a "when, as and if issued" or a "when distributed"
27 contract to cancel the contract in the event of a material
28 change in the character of the security which is the subject of
29 the contract or in the plan or arrangement pursuant to which
30 such security is to be issued or distributed.
19790S0372B0376 - 254 -
1 § 8203. Staleness as notice of defects or defenses.
2 (a) General rule.--After an act or event which creates a
3 right to immediate performance of the principal obligation
4 evidenced by the security or which sets a date on or after which
5 the security is to be presented or surrendered for redemption or
6 exchange, a purchaser is charged with notice of any defect in
7 its issue or defense of the issuer:
8 (1) if the act or event is one requiring the payment of
9 money or the delivery of securities or both on presentation
10 or surrender of the security and such funds or securities are
11 available on the date set for payment or exchange and he
12 takes the security more than one year after that date; and
13 (2) if the act or event is not covered by paragraph (1)
14 and he takes the security more than two years after the date
15 set for surrender or presentation or the date on which such
16 performance became due.
17 (b) Exception.--A call which has been revoked is not within
18 subsection (a).
19 § 8204. Effect of restrictions by issuer on transfer.
20 Unless noted conspicuously on the security a restriction on
21 transfer imposed by the issuer even though otherwise lawful is
22 ineffective except against a person with actual knowledge of it.
23 § 8205. Effect of unauthorized signature on issue.
24 An unauthorized signature placed on a security prior to or in
25 the course of issue is ineffective except that the signature is
26 effective in favor of a purchaser for value and without notice
27 of the lack of authority if the signing has been done by:
28 (1) an authenticating trustee, registrar, transfer agent
29 or other person entrusted by the issuer with the signing of
30 the security or of similar securities or their immediate
19790S0372B0376 - 255 -
1 preparation for signing; or
2 (2) an employee of the issuer or of any of the foregoing
3 entrusted with responsible handling of the security.
4 § 8206. Completion or alteration of instrument.
5 (a) Completion of security containing necessary
6 signatures.--Where a security contains the signatures necessary
7 to its issue or transfer but is incomplete in any other respect:
8 (1) any person may complete it by filling in the blanks
9 as authorized; and
10 (2) even though the blanks are incorrectly filled in,
11 the security as completed is enforceable by a purchaser who
12 took it for value and without notice of such incorrectness.
13 (b) Enforceability of improperly altered security.--A
14 complete security which has been improperly altered even though
15 fraudulently remains enforceable but only according to its
16 original terms.
17 § 8207. Rights of issuer with respect to registered owners.
18 (a) General rule.--Prior to due presentment for registration
19 of transfer of a security in registered form the issuer or
20 indenture trustee may treat the registered owner as the person
21 exclusively entitled to vote, to receive notifications and
22 otherwise to exercise all the rights and powers of an owner.
23 (b) Liability of registered owner for calls, etc.,
24 unaffected.--Nothing in this division shall be construed to
25 affect the liability of the registered owner of a security for
26 calls, assessments or the like.
27 § 8208. Effect of signature of authenticating trustee,
28 registrar or transfer agent.
29 (a) General rule.--A person placing his signature upon a
30 security as authenticating trustee, registrar, transfer agent or
19790S0372B0376 - 256 -
1 the like warrants to a purchaser for value without notice of the
2 particular defect that:
3 (1) the security is genuine;
4 (2) his own participation in the issue of the security
5 is within his capacity and within the scope of the
6 authorization received by him from the issuer; and
7 (3) he has reasonable grounds to believe that the
8 security is in the form and within the amount the issuer is
9 authorized to issue.
10 (b) Limitation.--Unless otherwise agreed, a person by so
11 placing his signature does not assume responsibility for the
12 validity of the security in other respects.
13 CHAPTER 83
14 PURCHASE
15 Sec.
16 8301. Rights acquired by purchaser; "adverse claim"; title
17 acquired by bona fide purchaser.
18 8302. "Bona fide purchaser."
19 8303. "Broker."
20 8304. Notice to purchaser of adverse claims.
21 8305. Staleness as notice of adverse claims.
22 8306. Warranties on presentment and transfer.
23 8307. Effect of delivery without indorsement; right to compel
24 indorsement.
25 8308. Indorsement, how made; special indorsement; indorser not
26 a guarantor; partial assignment.
27 8309. Effect of indorsement without delivery.
28 8310. Indorsement of security in bearer form.
29 8311. Effect of unauthorized indorsement.
30 8312. Effect of guaranteeing signature or indorsement.
19790S0372B0376 - 257 -
1 8313. When delivery to purchaser occurs; broker of
2 purchaser as holder.
3 8314. Duty to deliver, when completed.
4 8315. Action against purchaser based upon wrongful transfer.
5 8316. Right of purchaser to requisites for registration of
6 transfer on books.
7 8317. Attachment or levy upon security.
8 8318. No conversion by good faith delivery.
9 8319. Statute of frauds.
10 8320. Transfer or pledge within a central depository system.
11 § 8301. Rights acquired by purchaser; "adverse claim";
12 title acquired by bona fide purchaser.
13 (a) Rights acquired by purchaser.--Upon delivery of a
14 security the purchaser acquires the rights in the security which
15 his transferor had or had actual authority to convey except that
16 a purchaser who has himself been a party to any fraud or
17 illegality affecting the security or who as a prior holder had
18 notice of an adverse claim cannot improve his position by taking
19 from a later bona fide purchaser. "Adverse claim" includes a
20 claim that a transfer was or would be wrongful or that a
21 particular adverse person is the owner of or has an interest in
22 the security.
23 (b) Rights acquired by bona fide purchaser.--A bona fide
24 purchaser in addition to acquiring the rights of a purchaser
25 also acquires the security free of any adverse claim.
26 (c) Rights acquired by purchaser of limited interest.--A
27 purchaser of a limited interest acquires rights only to the
28 extent of the interest purchased.
29 § 8302. "Bona fide purchaser."
30 A "bona fide purchaser" is a purchaser for value in good
19790S0372B0376 - 258 -
1 faith and without notice of any adverse claim who takes delivery
2 of a security in bearer form or of one in registered form issued
3 to him or indorsed to him or in blank.
4 § 8303. "Broker."
5 "Broker" means a person engaged for all or part of his time
6 in the business of buying and selling securities, who in the
7 transaction concerned acts for, or buys a security from or sells
8 a security to a customer. Nothing in this division determines
9 the capacity in which a person acts for purposes of any other
10 statute or rule to which such person is subject.
11 § 8304. Notice to purchaser of adverse claims.
12 (a) General rule.--A purchaser (including a broker for the
13 seller or buyer but excluding an intermediary bank) of a
14 security is charged with notice of adverse claims if:
15 (1) the security whether in bearer or registered form
16 has been indorsed "for collection" or "for surrender" or for
17 some other purpose not involving transfer; or
18 (2) the security is in bearer form and has on it an
19 unambiguous statement that it is the property of a person
20 other than a transferor. The mere writing of a name on a
21 security is not such a statement.
22 (b) Duty of inquiry in fiduciary transactions.--The fact
23 that the purchaser (including a broker for the seller or buyer)
24 has notice that the security is held for a third person or is
25 registered in the name of or indorsed by a fiduciary does not
26 create a duty of inquiry into the rightfulness of the transfer
27 or constitute notice of adverse claims. If, however, the
28 purchaser (excluding an intermediary bank) has knowledge that
29 the proceeds are being used or that the transaction is for the
30 individual benefit of the fiduciary or otherwise in breach of
19790S0372B0376 - 259 -
1 duty, the purchaser is charged with notice of adverse claims.
2 § 8305. Staleness as notice of adverse claims.
3 An act or event which creates a right to immediate
4 performance of the principal obligation evidenced by the
5 security or which sets a date on or after which the security is
6 to be presented or surrendered for redemption or exchange does
7 not of itself constitute any notice of adverse claims except in
8 the case of a purchase:
9 (1) after one year from any date set for such
10 presentment or surrender for redemption or exchange; or
11 (2) after six months from any date set for payment of
12 money against presentation or surrender of the security if
13 funds are available for payment on that date.
14 § 8306. Warranties on presentment and transfer.
15 (a) Warranties of presenter to issuer.--A person who
16 presents a security for registration of transfer or for payment
17 or exchange warrants to the issuer that he is entitled to the
18 registration, payment or exchange. But a purchaser for value
19 without notice of adverse claims who receives a new, reissued or
20 reregistered security on registration of transfer warrants only
21 that he has no knowledge of any unauthorized signature (section
22 8311) in a necessary indorsement.
23 (b) Warranties of person transferring security to purchaser
24 for value.--A person by transferring a security to a purchaser
25 for value warrants only that:
26 (1) his transfer is effective and rightful;
27 (2) the security is genuine and has not been materially
28 altered; and
29 (3) he knows no fact which might impair the validity of
30 the security.
19790S0372B0376 - 260 -
1 (c) Warranties of intermediary delivering security.--Where a
2 security is delivered by an intermediary known to be entrusted
3 with delivery of the security on behalf of another or with
4 collection of a draft or other claim against such delivery, the
5 intermediary by such delivery warrants only his own good faith
6 and authority even though he has purchased or made advances
7 against the claim to be collected against the delivery.
8 (d) Warranties of pledgee or other holder for security.--A
9 pledgee or other holder for security who redelivers the security
10 received, or after payment and on order of the debtor delivers
11 that security to a third person makes only the warranties of an
12 intermediary under subsection (c).
13 (e) Warranties, rights and privileges of broker.--A broker
14 gives to his customer and to the issuer and a purchaser the
15 warranties provided in this section and has the rights and
16 privileges of a purchaser under this section. The warranties of
17 and in favor of the broker acting as an agent are in addition to
18 applicable warranties given by and in favor of his customer.
19 § 8307. Effect of delivery without indorsement; right to compel
20 indorsement.
21 Where a security in registered form has been delivered to a
22 purchaser without a necessary indorsement he may become a bona
23 fide purchaser only as of the time the indorsement is supplied,
24 but against the transferor the transfer is complete upon
25 delivery and the purchaser has a specifically enforceable right
26 to have any necessary indorsement supplied.
27 § 8308. Indorsement, how made; special indorsement; indorser
28 not a guarantor; partial assignment.
29 (a) Manner of indorsement.--An indorsement of a security in
30 registered form is made when an appropriate person signs on it
19790S0372B0376 - 261 -
1 or on a separate document an assignment or transfer of the
2 security or a power to assign or transfer it or when the
3 signature of such person is written without more upon the back
4 of the security.
5 (b) Blank and special indorsements.--An indorsement may be
6 in blank or special. An indorsement in blank includes an
7 indorsement to bearer. A special indorsement specifies the
8 person to whom the security is to be transferred, or who has
9 power to transfer it. A holder may convert a blank indorsement
10 into a special indorsement.
11 (c) Definition of "appropriate person".--An "appropriate
12 person" in subsection (a) means:
13 (1) the person specified by the security or by special
14 indorsement to be entitled to the security;
15 (2) where the person so specified is described as a
16 fiduciary but is no longer serving in the described
17 capacity,--either that person or his successor;
18 (3) where the security or indorsement so specifies more
19 than one person as fiduciaries and one or more are no longer
20 serving in the described capacity,--the remaining fiduciary
21 or fiduciaries, whether or not a successor has been appointed
22 or qualified;
23 (4) where the person so specified is an individual and
24 is without capacity to act by virtue of death, incompetence,
25 infancy or otherwise,--his executor, administrator, guardian
26 or like fiduciary;
27 (5) where the security or indorsement so specifies more
28 than one person as tenants by the entirety or with right of
29 survivorship and by reason of death all cannot sign,--the
30 survivor or survivors;
19790S0372B0376 - 262 -
1 (6) a person having power to sign under applicable law
2 or controlling instrument; or
3 (7) to the extent that any of the foregoing persons may
4 act through an agent,--his authorized agent.
5 (d) Indorser not a guarantor.--Unless otherwise agreed the
6 indorser by his indorsement assumes no obligation that the
7 security will be honored by the issuer.
8 (e) Effect of partial indorsement.--An indorsement
9 purporting to be only of part of a security representing units
10 intended by the issuer to be separately transferable is
11 effective to the extent of the indorsement.
12 (f) Status of appropriate person.--Whether the person
13 signing is appropriate is determined as of the date of signing
14 and an indorsement by such a person does not become unauthorized
15 for the purposes of this division by virtue of any subsequent
16 change of circumstances.
17 (g) Effect of noncompliance by fiduciary on his
18 indorsement.--Failure of a fiduciary to comply with a
19 controlling instrument or with the law of the state having
20 jurisdiction of the fiduciary relationship, including any law
21 requiring the fiduciary to obtain court approval of the
22 transfer, does not render his indorsement unauthorized for the
23 purposes of this division.
24 § 8309. Effect of indorsement without delivery.
25 An indorsement of a security whether special or in blank does
26 not constitute a transfer until delivery of the security on
27 which it appears or if the indorsement is on a separate document
28 until delivery of both the document and the security.
29 § 8310. Indorsement of security in bearer form.
30 An indorsement of a security in bearer form may give notice
19790S0372B0376 - 263 -
1 of adverse claims (section 8304) but does not otherwise affect
2 any right to registration the holder may possess.
3 § 8311. Effect of unauthorized indorsement.
4 Unless the owner has ratified an unauthorized indorsement or
5 is otherwise precluded from asserting its ineffectiveness:
6 (1) he may assert its ineffectiveness against the issuer
7 or any purchaser other than a purchaser for value and without
8 notice of adverse claims who has in good faith received a
9 new, reissued or reregistered security on registration of
10 transfer; and
11 (2) an issuer who registers the transfer of a security
12 upon the unauthorized indorsement is subject to liability for
13 improper registration (section 8404).
14 § 8312. Effect of guaranteeing signature or indorsement.
15 (a) Warranties of signature guarantor.--Any person
16 guaranteeing a signature of an indorser of a security warrants
17 that at the time of signing:
18 (1) the signature was genuine;
19 (2) the signer was an appropriate person to indorse
20 (section 8308); and
21 (3) the signer had legal capacity to sign.
22 But the guarantor does not otherwise warrant the rightfulness of
23 the particular transfer.
24 (b) Warranties of indorsement guarantor.--Any person may
25 guarantee an indorsement of a security and by so doing warrants
26 not only the signature (subsection (a)) but also the
27 rightfulness of the particular transfer in all respects. But no
28 issuer may require a guarantee of indorsement as a condition to
29 registration of transfer.
30 (c) Persons protected by warranties.--The foregoing
19790S0372B0376 - 264 -
1 warranties are made to any person taking or dealing with the
2 security in reliance on the guarantee and the guarantor is
3 liable to such person for any loss resulting from breach of the
4 warranties.
5 § 8313. When delivery to purchaser occurs; broker of
6 purchaser as holder.
7 (a) When delivery to purchaser occurs.--Delivery to a
8 purchaser occurs when:
9 (1) he or a person designated by him acquires possession
10 of a security;
11 (2) his broker acquires possession of a security
12 specially indorsed to or issued in the name of the purchaser;
13 (3) his broker sends him confirmation of the purchase
14 and also by book entry or otherwise identifies a specific
15 security in the possession of the broker as belonging to the
16 purchaser;
17 (4) with respect to an identified security to be
18 delivered while still in the possession of a third person
19 when that person acknowledges that he holds for the
20 purchaser; or
21 (5) appropriate entries on the books of a clearing
22 corporation are made under section 8320 (relating to transfer
23 or pledge within a central depository system).
24 (b) Rights of purchaser in security held by broker.--The
25 purchaser is the owner of a security held for him by his broker,
26 but is not the holder except as specified in subsection (a)(2),
27 (3) and (5). Where a security is part of a fungible bulk the
28 purchaser is the owner of a proportionate property interest in
29 the fungible bulk.
30 (c) Notice of adverse claim to security held by broker.--
19790S0372B0376 - 265 -
1 Notice of an adverse claim received by the broker or by the
2 purchaser after the broker takes delivery as a holder for value
3 is not effective either as to the broker or as to the purchaser.
4 However, as between the broker and the purchaser the purchaser
5 may demand delivery of an equivalent security as to which no
6 notice of an adverse claim has been received.
7 § 8314. Duty to deliver, when completed.
8 (a) Sale through broker.--Unless otherwise agreed where a
9 sale of a security is made on an exchange or otherwise through
10 brokers:
11 (1) the selling customer fulfills his duty to deliver
12 when he places such a security in the possession of the
13 selling broker or of a person designated by the broker or if
14 requested causes an acknowledgment to be made to the selling
15 broker that it is held for him; and
16 (2) the selling broker including a correspondent broker
17 acting for a selling customer fulfills his duty to deliver by
18 placing the security or a like security in the possession of
19 the buying broker or a person designated by him or by
20 effecting clearance of the sale in accordance with the rules
21 of the exchange on which the transaction took place.
22 (b) Other sales.--Except as otherwise provided in this
23 section and unless otherwise agreed, the duty of a transferor to
24 deliver a security under a contract of purchase is not fulfilled
25 until he places the security in form to be negotiated by the
26 purchaser in the possession of the purchaser or of a person
27 designated by him or at the request of the purchaser causes an
28 acknowledgment to be made to the purchaser that it is held for
29 him. Unless made on an exchange a sale to a broker purchasing
30 for his own account is within this subsection and not within
19790S0372B0376 - 266 -
1 subsection (a).
2 § 8315. Action against purchaser based upon wrongful transfer.
3 (a) General rule.--Any person against whom the transfer of a
4 security is wrongful for any reason, including his incapacity,
5 may against anyone except a bona fide purchaser reclaim
6 possession of the security or obtain possession of any new
7 security evidencing all or part of the same rights or have
8 damages.
9 (b) Unauthorized endorsement.--If the transfer is wrongful
10 because of an unauthorized indorsement, the owner may also
11 reclaim or obtain possession of the security or new security
12 even from a bona fide purchaser if the ineffectiveness of the
13 purported indorsement can be asserted against him under the
14 provisions of this division on unauthorized indorsements
15 (section 8311).
16 (c) Remedies available.--The right to obtain or reclaim
17 possession of a security may be specifically enforced and its
18 transfer enjoined and the security impounded pending the
19 litigation.
20 § 8316. Right of purchaser to requisites for registration of
21 transfer on books.
22 Unless otherwise agreed the transferor must on due demand
23 supply his purchaser with any proof of his authority to transfer
24 or with any other requisite which may be necessary to obtain
25 registration of the transfer of the security but if the transfer
26 is not for value a transferor need not do so unless the
27 purchaser furnishes the necessary expenses. Failure to comply
28 with a demand made within a reasonable time gives the purchaser
29 the right to reject or rescind the transfer.
30 § 8317. Attachment or levy upon security.
19790S0372B0376 - 267 -
1 (a) Seizure required.--No attachment or levy upon a security
2 or any share or other interest evidenced thereby which is
3 outstanding shall be valid until the security is actually seized
4 by the officer making the attachment or levy but a security
5 which has been surrendered to the issuer may be attached or
6 levied upon at the source.
7 (b) Remedies available.--A creditor whose debtor is the
8 owner of a security shall be entitled to such aid from courts of
9 appropriate jurisdiction, by injunction or otherwise, in
10 reaching such security or in satisfying the claim by means
11 thereof as is allowed at law or in equity in regard to property
12 which cannot readily be attached or levied upon by ordinary
13 legal process.
14 § 8318. No conversion by good faith delivery.
15 An agent or bailee who in good faith (including observance of
16 reasonable commercial standards if he is in the business of
17 buying, selling or otherwise dealing with securities) has
18 received securities and sold, pledged or delivered them
19 according to the instructions of his principal is not liable for
20 conversion or for participation in breach of fiduciary duty
21 although the principal had no right to dispose of them.
22 § 8319. Statute of frauds.
23 A contract for the sale of securities is not enforceable by
24 way of action or defense unless:
25 (1) there is some writing signed by the party against
26 whom enforcement is sought or by his authorized agent or
27 broker sufficient to indicate that a contract has been made
28 for sale of a stated quantity of described securities at a
29 defined or stated price;
30 (2) delivery of the security has been accepted or
19790S0372B0376 - 268 -
1 payment has been made but the contract is enforceable under
2 this paragraph only to the extent of such delivery or
3 payment;
4 (3) within a reasonable time a writing in confirmation
5 of the sale or purchase and sufficient against the sender
6 under paragraph (1) has been received by the party against
7 whom enforcement is sought and he has failed to send written
8 objection to its contents within ten days after its receipt;
9 or
10 (4) the party against whom enforcement is sought admits
11 in his pleading, testimony or otherwise in court that a
12 contract was made for sale of a stated quantity of described
13 securities at a defined or stated price.
14 § 8320. Transfer or pledge within a central depository system.
15 (a) Manner of effecting transfer or pledge.--If a security:
16 (1) is in the custody of a clearing corporation or of a
17 custodian bank or a nominee of either subject to the
18 instructions of the clearing corporation;
19 (2) is in bearer form or indorsed in blank by an
20 appropriate person or registered in the name of the clearing
21 corporation or custodian bank or a nominee of either; and
22 (3) is shown on the account of a transferor or pledgor
23 on the books of the clearing corporation;
24 then, in addition to other methods, a transfer or pledge of the
25 security or any interest therein may be effected by the making
26 of appropriate entries on the books of the clearing corporation
27 reducing the account of the transferor or pledgor and increasing
28 the account of the transferee or pledgee by the amount of the
29 obligation or the number of shares or rights transferred or
30 pledged.
19790S0372B0376 - 269 -
1 (b) Requisites for book entries.--Under this section entries
2 may be with respect to like securities or interests therein as a
3 part of a fungible bulk and may refer merely to a quantity of a
4 particular security without reference to the name of the
5 registered owner, certificate or bond number or the like and, in
6 appropriate cases, may be on a net basis taking into account
7 other transfers or pledges of the same security.
8 (c) Effect of transfer or pledge.--A transfer or pledge
9 under this section has the effect of a delivery of a security in
10 bearer form or duly indorsed in blank (section 8301 (relating to
11 rights acquired by purchaser; "adverse claim"; title acquired by
12 bona fide purchaser)) representing the amount of the obligation
13 or the number of shares or rights transferred or pledged. If a
14 pledge or the creation of a security interest is intended, the
15 making of entries has the effect of a taking of delivery by the
16 pledgee or a secured party (section 9304 (relating to perfection
17 of security interest in instruments, documents and goods covered
18 by documents) and section 9305 (relating to when possession by
19 secured party perfects security interest without filing)). A
20 transferee or pledgee under this section is a holder.
21 (d) Transfer or pledge not a registration.--A transfer or
22 pledge under this section does not constitute a registration of
23 transfer under Chapter 84 (relating to registration).
24 (e) Effect of inappropriate entries.--That entries made on
25 the books of the clearing corporation as provided in subsection
26 (a) are not appropriate does not affect the validity or effect
27 of the entries nor the liabilities or obligations of the
28 clearing corporation to any person adversely affected thereby.
29 CHAPTER 84
30 REGISTRATION
19790S0372B0376 - 270 -
1 Sec.
2 8401. Duty of issuer to register transfer.
3 8402. Assurance that indorsements are effective.
4 8403. Limited duty of inquiry.
5 8404. Liability and nonliability for registration.
6 8405. Lost, destroyed and stolen securities.
7 8406. Duty of authenticating trustee, transfer agent or
8 registrar.
9 § 8401. Duty of issuer to register transfer.
10 (a) General rule.--Where a security in registered form is
11 presented to the issuer with a request to register transfer, the
12 issuer is under a duty to register the transfer as requested if:
13 (1) the security is indorsed by the appropriate person
14 or persons (section 8308);
15 (2) reasonable assurance is given that those
16 indorsements are genuine and effective (section 8402);
17 (3) the issuer has no duty to inquire into adverse
18 claims or has discharged any such duty (section 8403);
19 (4) any applicable law relating to the collection of
20 taxes has been complied with; and
21 (5) the transfer is in fact rightful or is to a bona
22 fide purchaser.
23 (b) Liability for failure or delay in registering
24 transfer.--Where an issuer is under a duty to register a
25 transfer of a security the issuer is also liable to the person
26 presenting it for registration or his principal for loss
27 resulting from any unreasonable delay in registration or from
28 failure or refusal to register the transfer.
29 § 8402. Assurance that indorsements are effective.
30 (a) Assurances that issuer may require.--The issuer may
19790S0372B0376 - 271 -
1 require the following assurance that each necessary indorsement
2 (section 8308) is genuine and effective:
3 (1) In all cases, a guarantee of the signature (section
4 8312(a)) of the person indorsing.
5 (2) Where the indorsement is by an agent, appropriate
6 assurance of authority to sign.
7 (3) Where the indorsement is by a fiduciary, appropriate
8 evidence of appointment or incumbency.
9 (4) Where there is more than one fiduciary, reasonable
10 assurance that all who are required to sign have done so.
11 (5) Where the indorsement is by a person not covered by
12 any of the foregoing, assurance appropriate to the case
13 corresponding as nearly as may be to the foregoing.
14 (b) Guarantee of the signature.--A "guarantee of the
15 signature" in subsection (a) means a guarantee signed by or on
16 behalf of a person reasonably believed by the issuer to be
17 responsible. The issuer may adopt standards with respect to
18 responsibility provided such standards are not manifestly
19 unreasonable.
20 (c) Appropriate evidence of appointment or incumbency.--
21 "Appropriate evidence of appointment or incumbency" in
22 subsection (a) means:
23 (1) in the case of a fiduciary appointed or qualified by
24 a court, a certificate issued by or under the direction or
25 supervision of that court or an officer thereof and dated
26 within 60 days before the date of presentation for transfer;
27 or
28 (2) in any other case, a copy of a document showing the
29 appointment or a certificate issued by or on behalf of a
30 person reasonably believed by the issuer to be responsible
19790S0372B0376 - 272 -
1 or, in the absence of such a document or certificate, other
2 evidence reasonably deemed by the issuer to be appropriate.
3 The issuer may adopt standards with respect to such evidence
4 provided such standards are not manifestly unreasonable. The
5 issuer is not charged with notice of the contents of any
6 document obtained pursuant to this paragraph (2) except to
7 the extent that the contents relate directly to the
8 appointment or incumbency.
9 (d) Additional assurances that issuer may require.--The
10 issuer may elect to require reasonable assurance beyond that
11 specified in this section but if it does so and for a purpose
12 other than that specified in subsection (c)(2) both requires and
13 obtains a copy of a will, trust, indenture, articles of
14 copartnership, bylaws or other controlling instrument it is
15 charged with notice of all matters contained therein affecting
16 the transfer.
17 § 8403. Limited duty of inquiry.
18 (a) General rule.--An issuer to whom a security is presented
19 for registration is under a duty to inquire into adverse claims
20 if:
21 (1) a written notification of an adverse claim is
22 received at a time and in a manner which affords the issuer a
23 reasonable opportunity to act on it prior to the issuance of
24 a new, reissued or re-registered security and the
25 notification identifies the claimant, the registered owner
26 and the issue of which the security is a part and provides an
27 address for communications directed to the claimant; or
28 (2) the issuer is charged with notice of an adverse
29 claim from a controlling instrument which it has elected to
30 require under section 8402(d) (relating to additional
19790S0372B0376 - 273 -
1 assurances that issuer may require).
2 (b) Method of inquiry.--The issuer may discharge any duty of
3 inquiry by any reasonable means, including notifying an adverse
4 claimant by registered or certified mail at the address
5 furnished by him or if there be no such address at his residence
6 or regular place of business that the security has been
7 presented for registration of transfer by a named person, and
8 that the transfer will be registered unless within 30 days from
9 the date of mailing the notification, either:
10 (1) an appropriate restraining order, injunction or
11 other process issues from a court of competent jurisdiction;
12 or
13 (2) an indemnity bond sufficient in the judgment of the
14 issuer to protect the issuer and any transfer agent,
15 registrar or other agent of the issuer involved, from any
16 loss which it or they may suffer by complying with the
17 adverse claim is filed with the issuer.
18 (c) When inquiry unnecessary.--Unless an issuer is charged
19 with notice of an adverse claim from a controlling instrument
20 which it has elected to require under section 8402(d) or
21 receives notification of an adverse claim under subsection (a),
22 where a security presented for registration is indorsed by the
23 appropriate person or persons the issuer is under no duty to
24 inquire into adverse claims. In particular:
25 (1) an issuer registering a security in the name of a
26 person who is a fiduciary or who is described as a fiduciary
27 is not bound to inquire into the existence, extent, or
28 correct description of the fiduciary relationship and
29 thereafter the issuer may assume without inquiry that the
30 newly registered owner continues to be the fiduciary until
19790S0372B0376 - 274 -
1 the issuer receives written notice that the fiduciary is no
2 longer acting as such with respect to the particular
3 security;
4 (2) an issuer registering transfer on an indorsement by
5 a fiduciary is not bound to inquire whether the transfer is
6 made in compliance with a controlling instrument or with the
7 law of the state having jurisdiction of the fiduciary
8 relationship, including any law requiring the fiduciary to
9 obtain court approval of the transfer; and
10 (3) the issuer is not charged with notice of the
11 contents of any court record or file or other recorded or
12 unrecorded document even though the document is in its
13 possession and even though the transfer is made on the
14 indorsement of a fiduciary to the fiduciary himself or to his
15 nominee.
16 § 8404. Liability and nonliability for registration.
17 (a) General rule.--Except as otherwise provided in any law
18 relating to the collection of taxes, the issuer is not liable to
19 the owner or any other person suffering loss as a result of the
20 registration of a transfer of a security if:
21 (1) there were on or with the security the necessary
22 indorsements (section 8308); and
23 (2) the issuer had no duty to inquire into adverse
24 claims or has discharged any such duty (section 8403).
25 (b) Transfer to person not entitled.--Where an issuer has
26 registered a transfer of a security to a person not entitled to
27 it the issuer on demand must deliver a like security to the true
28 owner unless:
29 (1) the registration was pursuant to subsection (a);
30 (2) the owner is precluded from asserting any claim for
19790S0372B0376 - 275 -
1 registering the transfer under section 8405(a) (relating to
2 lost, destroyed and stolen securities); or
3 (3) such delivery would result in overissue, in which
4 case the liability of the issuer is governed by section 8104
5 (relating to effect of overissue).
6 § 8405. Lost, destroyed and stolen securities.
7 (a) Failure of owner to notify issuer.--Where a security has
8 been lost, apparently destroyed or wrongfully taken and the
9 owner fails to notify the issuer of that fact within a
10 reasonable time after he has notice of it and the issuer
11 registers a transfer of the security before receiving such a
12 notification, the owner is precluded from asserting against the
13 issuer any claim for registering the transfer under section 8404
14 (relating to liability and nonliability for registration) or any
15 claim to a new security under this section.
16 (b) When owner entitled to new security.--Where the owner of
17 a security claims that the security has been lost, destroyed or
18 wrongfully taken, the issuer must issue a new security in place
19 of the original security if the owner:
20 (1) so requests before the issuer has notice that the
21 security has been acquired by a bona fide purchaser;
22 (2) files with the issuer a sufficient indemnity bond;
23 and
24 (3) satisfies any other reasonable requirements imposed
25 by the issuer.
26 (c) Rights and duties of issuer when original security
27 presented for transfer.--If, after the issue of the new
28 security, a bona fide purchaser of the original security
29 presents it for registration of transfer, the issuer must
30 register the transfer, unless registration would result in
19790S0372B0376 - 276 -
1 overissue, in which event the liability of the issuer is
2 governed by section 8104 (relating to effect of overissue). In
3 addition to any rights on the indemnity bond, the issuer may
4 recover the new security from the person to whom it was issued
5 or any person taking under him except a bona fide purchaser.
6 § 8406. Duty of authenticating trustee, transfer agent or
7 registrar.
8 (a) General rule.--Where a person acts as authenticating
9 trustee, transfer agent, registrar, or other agent for an issuer
10 in the registration of transfers of its securities or in the
11 issue of new securities or in the cancellation of surrendered
12 securities:
13 (1) he is under a duty to the issuer to exercise good
14 faith and due diligence in performing his functions; and
15 (2) he has with regard to the particular functions he
16 performs the same obligation to the holder or owner of the
17 security and has the same rights and privileges as the issuer
18 has in regard to those functions.
19 (b) Notice to agent is notice to issuer.--Notice to an
20 authenticating trustee, transfer agent, registrar or other such
21 agent is notice to the issuer with respect to the functions
22 performed by the agent.
23 DIVISION 9
24 SECURED TRANSACTIONS; SALES OF ACCOUNTS,
25 CONTRACT RIGHTS AND CHATTEL PAPER
26 Chapter
27 91. Short Title, Applicability and Definitions
28 92. Validity of Security Agreement and Rights of Parties
29 Thereto
30 93. Rights of Third Parties; Perfected and Unperfected
19790S0372B0376 - 277 -
1 Security Interests; Rules of Priority
2 94. Filing
3 95. Default
4 CHAPTER 91
5 SHORT TITLE, APPLICABILITY AND DEFINITIONS
6 Sec.
7 9101. Short title of division.
8 9102. Policy and scope of division.
9 9103. Accounts, contract rights, general intangibles and
10 equipment relating to another jurisdiction; and
11 incoming goods already subject to a security interest.
12 9104. Transactions excluded from division.
13 9105. Definitions and index of definitions.
14 9106. Definitions: "account"; "contract right"; "general
15 intangibles."
16 9107. Definition: "purchase money security interest."
17 9108. When after-acquired collateral not security for
18 antecedent debt.
19 9109. Classification of goods: "consumer goods"; "equipment";
20 "farm products"; "inventory."
21 9110. Sufficiency of description.
22 9111. Applicability of bulk transfer laws.
23 9112. Where collateral is not owned by debtor.
24 9113. Security interests arising under division on sales.
25 § 9101. Short title of division.
26 This division shall be known and may be cited as the "Uniform
27 Commercial Code--Secured Transactions."
28 § 9102. Policy and scope of division.
29 (a) General rule.--Except as otherwise provided in section
30 9103 on multiple state transactions and in section 9104 on
19790S0372B0376 - 278 -
1 excluded transactions, this division applies so far as concerns
2 any personal property and fixtures within the jurisdiction of
3 this Commonwealth:
4 (1) to any transaction (regardless of its form) which is
5 intended to create a security interest in personal property
6 or fixtures including goods, documents, instruments, general
7 intangibles, chattel paper, accounts or contract rights; and
8 also
9 (2) to any sale of accounts, contract rights or chattel
10 paper.
11 (b) Contracts and statutory liens.--This division applies to
12 security interests created by contract including pledge,
13 assignment, chattel mortgage, chattel trust, trust deed,
14 factor's lien, equipment trust, conditional sale, trust receipt,
15 other lien or title retention contract and lease or consignment
16 intended as security. This division does not apply to statutory
17 liens except as provided in section 9310 (relating to priority
18 of certain liens arising by operation of law).
19 (c) Applicability to certain security interests
20 unaffected.--The application of this division to a security
21 interest in a secured obligation is not affected by the fact
22 that the obligation is itself secured by a transaction or
23 interest to which this division does not apply.
24 § 9103. Accounts, contract rights, general intangibles and
25 equipment relating to another jurisdiction; and
26 incoming goods already subject to a security interest.
27 (a) Accounts and contract rights.--If the office where the
28 assignor of accounts or contract rights keeps his records
29 concerning them is in this Commonwealth, the validity and
30 perfection of a security interest therein and the possibility
19790S0372B0376 - 279 -
1 and effect of proper filing is governed by this division;
2 otherwise by the law (including the conflict of laws rules) of
3 the jurisdiction where such office is located.
4 (b) General intangibles and mobile equipment.--
5 If the chief place of business of a debtor is in this
6 Commonwealth, this division governs the validity and
7 perfection of a security interest and the possibility and
8 effect of proper filing with regard to general intangibles or
9 with regard to goods of a type which are normally used in
10 more than one jurisdiction (such as automotive equipment,
11 rolling stock, airplanes, road building equipment, commercial
12 harvesting equipment, construction machinery and the like) if
13 such goods are classified as equipment or classified as
14 inventory by reason of their being leased by the debtor to
15 others. Otherwise, the law (including the conflict of laws
16 rules) of the jurisdiction where such chief place of business
17 is located shall govern.
18 If the chief place of business is located in a
19 jurisdiction which does not provide for perfection of the
20 security interest by filing or recording in that
21 jurisdiction, then the security interest may be perfected by
22 filing in this Commonwealth.
23 For the purpose of determining the validity and
24 perfection of a security interest in an airplane, the chief
25 place of business of a debtor who is a foreign air carrier
26 under the Federal Aviation Act of 1958, as amended, is the
27 designated office of the agent upon whom service of process
28 may be made on behalf of the debtor.
29 (c) Incoming property already subject to security
30 interest.--If personal property other than that governed by
19790S0372B0376 - 280 -
1 subsections (a) and (b) is already subject to a security
2 interest when it is brought into this Commonwealth, the validity
3 of the security interest in this Commonwealth is to be
4 determined by the law (including the conflict of laws rules) of
5 the jurisdiction where the property was when the security
6 interest attached. However, if the parties to the transaction
7 understood at the time that the security interest attached that
8 the property would be kept in this Commonwealth and it was
9 brought into this Commonwealth within 30 days after the security
10 interest attached for purposes other than transportation through
11 this Commonwealth, then the validity of the security interest in
12 this Commonwealth is to be determined by the law of this
13 Commonwealth. If the security interest was already perfected
14 under the law of the jurisdiction where the property was when
15 the security interest attached and before being brought into
16 this Commonwealth, the security interest continues perfected in
17 this Commonwealth for four months and also thereafter if within
18 the four-month period it is perfected in this Commonwealth. The
19 security interest may also be perfected in this Commonwealth
20 after the expiration of the four-month period; in such case
21 perfection dates from the time of perfection in this
22 Commonwealth. If the security interest was not perfected under
23 the law of the jurisdiction where the property was when the
24 security interest attached and before being brought into this
25 Commonwealth, it may be perfected in this Commonwealth; in such
26 case perfection dates from the time of perfection in this
27 Commonwealth.
28 (d) Certificate of title to indicate security interest.--
29 Notwithstanding subsections (b) and (c), if personal property is
30 covered by a certificate of title issued under a statute of this
19790S0372B0376 - 281 -
1 Commonwealth or any other jurisdiction which requires indication
2 on a certificate of title of any security interest in the
3 property as a condition of perfection, then the perfection is
4 governed by the law of the jurisdiction which issued the
5 certificate.
6 (e) Records of accounts and contract rights outside United
7 States.--Notwithstanding subsection (a) and section 9302
8 (relating to when filing is required to perfect security
9 interest), if the office where the assignor of accounts or
10 contract rights keeps his records concerning them is not located
11 in a jurisdiction which is a part of the United States, its
12 territories or possessions, and the accounts or contract rights
13 are within the jurisdiction of this Commonwealth or the
14 transaction which creates the security interest otherwise bears
15 an appropriate relation to this Commonwealth, this division
16 governs the validity and perfection of the security interest and
17 the security interest may only be perfected by notification to
18 the account debtor.
19 § 9104. Transactions excluded from division.
20 This division does not apply:
21 (1) to a security interest subject to any statute of the
22 United States such as the Ship Mortgage Act, 1920, to the
23 extent that such statute governs the rights of parties to and
24 third parties affected by transactions in particular types of
25 property;
26 (2) to the lien of a landlord;
27 (3) to a lien given by statute or other rule of law for
28 services or materials except as provided in section 9310 on
29 priority of such liens;
30 (4) to a transfer of a claim for wages, salary or other
19790S0372B0376 - 282 -
1 compensation of an employee;
2 (5) to an equipment trust covering railway rolling
3 stock;
4 (6) to a sale of accounts, contract rights or chattel
5 paper as a part of a sale of the business out of which they
6 arose, or an assignment of accounts, contract rights or
7 chattel paper which is for the purpose of collection only, or
8 a transfer of a contract right to an assignee who is also to
9 do the performance under the contract;
10 (7) to a transfer of an interest or claim in or under
11 any policy of insurance;
12 (8) to a right represented by a judgment;
13 (9) to any right of set-off;
14 (10) except to the extent that provision is made for
15 fixtures in section 9313 (relating to priority of security
16 interests in fixtures), to the creation or transfer of an
17 interest in or lien on real estate, including a lease or
18 rents thereunder; or
19 (11) to a transfer in whole or in part of any of the
20 following:
21 (i) any claim arising out of tort; or
22 (ii) any deposit, savings, passbook or like account
23 maintained with a bank, savings and loan association,
24 credit union or like organization.
25 § 9105. Definitions and index of definitions.
26 (a) Definitions.--The following words and phrases when used
27 in this division shall have, unless the context clearly
28 indicates otherwise, the meanings given to them in this
29 subsection:
30 "Account debtor." The person who is obligated on an account,
19790S0372B0376 - 283 -
1 chattel paper, contract right or general intangible.
2 "Chattel paper." A writing or writings which evidence both a
3 monetary obligation and a security interest in or a lease of
4 specific goods. When a transaction is evidenced both by such a
5 security agreement or a lease and by an instrument or a series
6 of instruments, the group of writings taken together constitutes
7 chattel paper.
8 "Collateral." The property subject to a security interest,
9 including accounts, contract rights and chattel paper which have
10 been sold.
11 "Debtor." The person who owes payment or other performance
12 of the obligation secured, whether or not he owns or has rights
13 in the collateral, including the seller of accounts, contract
14 rights or chattel paper. Where the debtor and the owner of the
15 collateral are not the same person, the term "debtor" means the
16 owner of the collateral in any provision of the division dealing
17 with the collateral, the obligor in any provision dealing with
18 the obligation, and may include both where the context so
19 requires.
20 "Document." Document of title as defined in the general
21 definitions of Division 1 (section 1201).
22 "Goods." All things which are movable at the time the
23 security interest attaches or which are fixtures (section 9313),
24 but does not include money, documents, instruments, accounts,
25 chattel paper, general intangibles, contract rights and other
26 things in action. "Goods" also includes the unborn young of
27 animals and growing crops.
28 "Instrument." A negotiable instrument (defined in section
29 3104), or a security (defined in section 8102) or any other
30 writing which evidences a right to the payment of money and is
19790S0372B0376 - 284 -
1 not itself a security agreement or lease and is of a type which
2 is in ordinary course of business transferred by delivery with
3 any necessary indorsement or assignment.
4 "Security agreement." An agreement which creates or provides
5 for a security interest.
6 "Secured party." A lender, seller or other person in whose
7 favor there is a security interest, including a person to whom
8 accounts, contract rights or chattel paper have been sold. When
9 the holders of obligations issued under an indenture of trust,
10 equipment trust agreement or the like are represented by a
11 trustee or other person, the representative is the secured
12 party.
13 (b) Index of other definitions in division.--Other
14 definitions applying to this division and the sections in which
15 they appear are:
16 "Account." Section 9106.
17 "Consumer goods." Section 9109(1).
18 "Contract right." Section 9106.
19 "Equipment." Section 9109(2).
20 "Farm products." Section 9109(3)
21 "General intangibles." Section 9106.
22 "Inventory." Section 9109(4).
23 "Lien creditor." Section 9301(c).
24 "Proceeds." Section 9306(a).
25 "Purchase money security interests." Section 9107.
26 (c) Index of definitions in other divisions.--The following
27 definitions in other divisions of this title apply to this
28 division:
29 "Check." Section 3104.
30 "Contract for sale." Section 2106.
19790S0372B0376 - 285 -
1 "Holder in due course." Section 3302.
2 "Note." Section 3104.
3 "Sale." Section 2106.
4 (d) Applicability of general definitions and principles.--In
5 addition, Division 1 (relating to general provisions) contains
6 general definitions and principles of construction and
7 interpretation applicable throughout this division.
8 § 9106. Definitions: "account"; "contract right"; "general
9 intangibles."
10 The following words and phrases when used in this division
11 shall have, unless the context clearly indicates otherwise, the
12 meanings given to them in this section:
13 "Account." Any right to payment for goods sold or leased or
14 for services rendered which is not evidenced by an instrument or
15 chattel paper.
16 "Contract right." Any right to payment under a contract not
17 yet earned by performance and not evidenced by an instrument or
18 chattel paper.
19 "General intangibles." Any personal property (including
20 things in action) other than goods, accounts, contract rights,
21 chattel paper, documents and instruments.
22 § 9107. Definition: "purchase money security interest."
23 A security interest is a "purchase money security interest"
24 to the extent that it is:
25 (1) taken or retained by the seller of the collateral to
26 secure all or part of its price; or
27 (2) taken by a person who by making advances or
28 incurring an obligation gives value to enable the debtor to
29 acquire rights in or the use of collateral if such value is
30 in fact so used.
19790S0372B0376 - 286 -
1 § 9108. When after-acquired collateral not security for
2 antecedent debt.
3 Where a secured party makes an advance, incurs an obligation,
4 releases a perfected security interest, or otherwise gives new
5 value which is to be secured in whole or in part by after-
6 acquired property his security interest in the after-acquired
7 collateral shall be deemed to be taken for new value and not as
8 security for an antecedent debt if the debtor acquires his
9 rights in such collateral either in the ordinary course of his
10 business or under a contract of purchase made pursuant to the
11 security agreement within a reasonable time after new value is
12 given.
13 § 9109. Classification of goods: "consumer goods"; "equipment";
14 "farm products"; "inventory."
15 Goods are:
16 (1) "Consumer goods" if they are used or bought for use
17 primarily for personal, family or household purposes.
18 (2) "Equipment" if they are used or bought for use
19 primarily in business (including farming or a profession) or
20 by a debtor who is a nonprofit organization or a governmental
21 subdivision or agency or if the goods are not included in the
22 definitions of inventory, farm products or consumer goods.
23 (3) "Farm products" if they are crops or livestock or
24 supplies used or produced in farming operations or if they
25 are products of crops or livestock in their unmanufactured
26 states (such as ginned cotton, wool-clip, maple syrup, milk
27 and eggs), and if they are in the possession of a debtor
28 engaged in raising, fattening, grazing or other farming
29 operations. If goods are farm products they are neither
30 equipment nor inventory.
19790S0372B0376 - 287 -
1 (4) "Inventory" if they are held by a person who holds
2 them for sale or lease or to be furnished under contracts of
3 service or if he has so furnished them, or if they are raw
4 materials, work in process or materials used or consumed in a
5 business. Inventory of a person is not to be classified as
6 his equipment.
7 § 9110. Sufficiency of description.
8 For the purposes of this division any description of personal
9 property or real estate is sufficient whether or not it is
10 specific if it reasonably identifies what is described.
11 § 9111. Applicability of bulk transfer laws.
12 The creation of a security interest is not a bulk transfer
13 under Division 6 (relating to bulk transfers) (see section
14 6103).
15 § 9112. Where collateral is not owned by debtor.
16 Unless otherwise agreed, when a secured party knows that
17 collateral is owned by a person who is not the debtor, the owner
18 of the collateral is entitled to receive from the secured party
19 any surplus under section 9502(b) (relating to collection rights
20 of secured party) or under section 9504(a) (relating to right of
21 secured party to dispose of collateral after default), and is
22 not liable for the debt or for any deficiency after resale, and
23 he has the same right as the debtor:
24 (1) to receive statements under section 9208 (relating
25 to request for statement of account or list of collateral);
26 (2) to receive notice of and to object to a proposal by
27 a secured party to retain the collateral in satisfaction of
28 the indebtedness under section 9505 (relating to compulsory
29 disposition of collateral);
30 (3) to redeem the collateral under section 9506
19790S0372B0376 - 288 -
1 (relating to right of debtor to redeem collateral);
2 (4) to obtain injunctive or other relief under section
3 9507(a) (relating to liability of secured party for failure
4 to comply with default procedures); and
5 (5) to recover losses caused to him under section
6 9208(b).
7 § 9113. Security interests arising under division on sales.
8 A security interest arising solely under Division 2 (relating
9 to sales) is subject to the provisions of this division except
10 that to the extent that and so long as the debtor does not have
11 or does not lawfully obtain possession of the goods:
12 (1) no security agreement is necessary to make the
13 security interest enforceable;
14 (2) no filing is required to perfect the security
15 interest; and
16 (3) the rights of the secured party on default by the
17 debtor are governed by Division 2.
18 CHAPTER 92
19 VALIDITY OF SECURITY AGREEMENT AND
20 RIGHTS OF PARTIES THERETO
21 Sec.
22 9201. General validity of security agreement.
23 9202. Title to collateral immaterial.
24 9203. Enforceability of security interest; proceeds, formal
25 requisites.
26 9204. When security interest attaches; after-acquired property;
27 future advances.
28 9205. Use or disposition of collateral without accounting
29 permissible.
30 9206. Agreement not to assert defenses against assignee;
19790S0372B0376 - 289 -
1 modification of sales warranties where security agreement
2 exists.
3 9207. Rights and duties when collateral in possession of
4 secured party.
5 9208. Request for statement of account or list of collateral.
6 § 9201. General validity of security agreement.
7 Except as otherwise provided by this title, a security
8 agreement is effective according to its terms between the
9 parties, against purchasers of the collateral and against
10 creditors. Nothing in this division validates any charge or
11 practice illegal under any statute or regulation thereunder
12 governing usury, small loans, retail installment sales, or the
13 like, or extends the application of any such statute or
14 regulation to any transaction not otherwise subject thereto.
15 § 9202. Title to collateral immaterial.
16 Each provision of this division with regard to rights,
17 obligations and remedies applies whether title to collateral is
18 in the secured party or in the debtor.
19 § 9203. Enforceability of security interest; proceeds, formal
20 requisites.
21 (a) General rule.--Subject to the provisions of section 4208
22 on the security interest of a collecting bank and section 9113
23 on a security interest arising under the division on sales, a
24 security interest is not enforceable against the debtor or third
25 parties unless:
26 (1) the collateral is in the possession of the secured
27 party; or
28 (2) the debtor has signed a security agreement which
29 contains a description of the collateral and in addition,
30 when the security interest covers crops or oil, gas or
19790S0372B0376 - 290 -
1 minerals to be extracted or timber to be cut, a description
2 of the land concerned. In describing collateral, the word
3 "proceeds" is sufficient without further description to cover
4 proceeds of any character.
5 (b) Applicability of other statutes.--A transaction,
6 although subject to this division, is also subject to the act of
7 April 8, 1937 (P.L.262, No.66), known as the "Consumer Discount
8 Company Act," and the act of June 28, 1947 (P.L.1110, No.476),
9 known as the "Motor Vehicle Sales Finance Act," insofar as any
10 such statute by its terms applies to the transaction, and in the
11 case of conflict between the provisions of this division and any
12 such statute, the provisions of such statute control. Failure to
13 comply with any applicable statute has only the effect which is
14 specified therein.
15 § 9204. When security interest attaches; after-acquired
16 property; future advances.
17 (a) When security interest attaches.--A security interest
18 cannot attach until there is agreement (section 1201 (relating
19 to general definitions)) that it attach and value is given and
20 the debtor has rights in the collateral. It attaches as soon as
21 all of the events in the preceding sentence have taken place
22 unless explicit agreement postpones the time of attaching.
23 (b) When debtor acquires rights in collateral.--For the
24 purposes of this section the debtor has no rights:
25 (1) in crops until they are planted or otherwise become
26 growing crops, in the young of livestock until they are
27 conceived;
28 (2) in fish until caught, in oil, gas or minerals until
29 they are extracted, in timber until it is cut;
30 (3) in a contract right until the contract has been
19790S0372B0376 - 291 -
1 made; or
2 (4) in an account until it comes into existence.
3 (c) After-acquired property clause authorized.--Except as
4 provided in subsection (d) a security agreement may provide that
5 collateral, whenever acquired, shall secure all obligations
6 covered by the security agreement.
7 (d) Attachment of security interest under after-acquired
8 property clause.--No security interest attaches under an after-
9 acquired property clause:
10 (1) to crops which become such more than one year after
11 the security agreement is executed except that a security
12 interest in crops which is given in conjunction with a lease
13 or a land purchase or improvement transaction evidenced by a
14 contract, mortgage or deed of trust may if so agreed attach
15 to crops to be grown on the land concerned during the period
16 of such real estate transaction; or
17 (2) to consumer goods other than accessions (section
18 9314) when given as additional security unless the debtor
19 acquires rights in them within ten days after the secured
20 party gives value.
21 (e) Security agreement may cover future advances.--
22 Obligations covered by a security agreement may include future
23 advances or other value whether or not the advances or value are
24 given pursuant to commitment.
25 § 9205. Use or disposition of collateral without accounting
26 permissible.
27 A security interest is not invalid or fraudulent against
28 creditors by reason of liberty in the debtor to use, commingle
29 or dispose of all or part of the collateral (including returned
30 or repossessed goods) or to collect or compromise accounts,
19790S0372B0376 - 292 -
1 contract rights or chattel paper, or to accept the return of
2 goods or make repossessions, or to use, commingle or dispose of
3 proceeds, or by reason of the failure of the secured party to
4 require the debtor to account for proceeds or replace
5 collateral. This section does not relax the requirements of
6 possession where perfection of a security interest depends upon
7 possession of the collateral by the secured party or by a
8 bailee.
9 § 9206. Agreement not to assert defenses against assignee;
10 modification of sales warranties where security
11 agreement exists.
12 (a) Agreement not to assert defenses against assignee.--
13 Subject to any statute or decision which establishes a different
14 rule for buyers or lessees of consumer goods, an agreement by a
15 buyer or lessee that he will not assert against an assignee any
16 claim or defense which he may have against the seller or lessor
17 is enforceable by an assignee who takes his assignment for
18 value, in good faith and without notice of a claim or defense,
19 except as to defenses of a type which may be asserted against a
20 holder in due course of a negotiable instrument under Division 3
21 (relating to commercial paper). A buyer who as part of one
22 transaction signs both a negotiable instrument and a security
23 agreement makes such an agreement.
24 (b) Purchase money security interest governed by sales
25 provisions.--When a seller retains a purchase money security
26 interest in goods, Division 2 (relating to sales) governs the
27 sale and any disclaimer, limitation or modification of the
28 warranties of the seller.
29 § 9207. Rights and duties when collateral in possession of
30 secured party.
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1 (a) Duty of secured party to use reasonable care.--A secured
2 party must use reasonable care in the custody and preservation
3 of collateral in his possession. In the case of an instrument or
4 chattel paper reasonable care includes taking necessary steps to
5 preserve rights against prior parties unless otherwise agreed.
6 (b) Rights and duties of parties.--Unless otherwise agreed,
7 when collateral is in the possession of the secured party:
8 (1) reasonable expenses (including the cost of any
9 insurance and payment of taxes or other charges) incurred in
10 the custody, preservation, use or operation of the collateral
11 are chargeable to the debtor and are secured by the
12 collateral;
13 (2) the risk of accidental loss or damage is on the
14 debtor to the extent of any deficiency in any effective
15 insurance coverage;
16 (3) the secured party may hold as additional security
17 any increase or profits (except money) received from the
18 collateral, but money so received, unless remitted to the
19 debtor, shall be applied in reduction of the secured
20 obligation;
21 (4) the secured party must keep the collateral
22 identifiable but fungible collateral may be commingled; and
23 (5) the secured party may repledge the collateral upon
24 terms which do not impair the right of the debtor to redeem
25 it.
26 (c) Liability of secured party for losses.--A secured party
27 is liable for any loss caused by his failure to meet any
28 obligation imposed by subsections (a) and (b) but does not lose
29 his security interest.
30 (d) Use of collateral by secured party.--A secured party may
19790S0372B0376 - 294 -
1 use or operate the collateral for the purpose of preserving the
2 collateral or its value or pursuant to the order of a court of
3 appropriate jurisdiction or, except in the case of consumer
4 goods, in the manner and to the extent provided in the security
5 agreement.
6 § 9208. Request for statement of account or list of collateral.
7 (a) General rule.--A debtor may sign a statement indicating
8 what he believes to be the aggregate amount of unpaid
9 indebtedness as of a specified date and may send it to the
10 secured party with a request that the statement be approved or
11 corrected and returned to the debtor. When the security
12 agreement or any other record kept by the secured party
13 identifies the collateral a debtor may similarly request the
14 secured party to approve or correct a list of the collateral.
15 (b) Compliance by secured party with request.--The secured
16 party must comply with such a request within two weeks after
17 receipt by sending a written correction or approval. If the
18 secured party claims a security interest in all of a particular
19 type of collateral owned by the debtor he may indicate that fact
20 in his reply and need not approve or correct an itemized list of
21 such collateral. If the secured party without reasonable excuse
22 fails to comply he is liable for any loss caused to the debtor
23 thereby; and if the debtor has properly included in his request
24 a good faith statement of the obligation or a list of the
25 collateral or both the secured party may claim a security
26 interest only as shown in the statement against persons misled
27 by his failure to comply. If he no longer has an interest in the
28 obligation or collateral at the time the request is received he
29 must disclose the name and address of any successor in interest
30 known to him and he is liable for any loss caused to the debtor
19790S0372B0376 - 295 -
1 as a result of failure to disclose. A successor in interest is
2 not subject to this section until a request is received by him.
3 (c) Charges for furnishing statements.--A debtor is entitled
4 to such a statement once every six months without charge. The
5 secured party may require payment of a charge not exceeding $10
6 for each additional statement furnished.
7 CHAPTER 93
8 RIGHTS OF THIRD PARTIES; PERFECTED AND UNPERFECTED
9 SECURITY INTERESTS; RULES OF PRIORITY
10 Sec.
11 9301. Persons who take priority over unperfected security
12 interests; "lien creditor."
13 9302. When filing is required to perfect security interest;
14 security interests to which filing provisions of
15 division do not apply.
16 9303. When security interest is perfected; continuity of
17 perfection.
18 9304. Perfection of security interest in instruments,
19 documents, and goods covered by documents; perfection by
20 permissive filing; temporary perfection without filing
21 or transfer of possession.
22 9305. When possession by secured party perfects security
23 interest without filing.
24 9306. "Proceeds"; rights of secured party on disposition of
25 collateral.
26 9307. Protection of buyers of goods.
27 9308. Purchase of chattel paper and nonnegotiable instruments.
28 9309. Protection of purchasers of instruments and documents.
29 9310. Priority of certain liens arising by operation of law.
30 9311. Alienability of rights of debtor; judicial process.
19790S0372B0376 - 296 -
1 9312. Priorities among conflicting security interests in
2 same collateral.
3 9313. Priority of security interests in fixtures.
4 9314. Accessions.
5 9315. Priority when goods are commingled or processed.
6 9316. Priority subject to subordination.
7 9317. Secured party not obligated on contract of debtor.
8 9318. Defenses against assignee; modification of contract after
9 notification of assignment; term prohibiting assignment
10 ineffective; identification and proof of assignment.
11 § 9301. Persons who take priority over unperfected security
12 interests; "lien creditor."
13 (a) General rule.--Except as otherwise provided in
14 subsection (b), an unperfected security interest is subordinate
15 to the rights of:
16 (1) persons entitled to priority under section 9312
17 (relating to priorities among conflicting security interests
18 in same collateral);
19 (2) a person who becomes a lien creditor without
20 knowledge of the security interest and before it is
21 perfected;
22 (3) in the case of goods, instruments, documents, and
23 chattel paper, a person who is not a secured party and who is
24 a transferee in bulk or other buyer not in ordinary course of
25 business to the extent that he gives value and receives
26 delivery of the collateral without knowledge of the security
27 interest and before it is perfected; and
28 (4) in the case of accounts, contract rights, and
29 general intangibles, a person who is not a secured party and
30 who is a transferee to the extent that he gives value without
19790S0372B0376 - 297 -
1 knowledge of the security interest and before it is
2 perfected.
3 (b) Priority of unperfected purchase money security
4 interest.--If the secured party files with respect to a purchase
5 money security interest before or within ten days after the
6 collateral comes into possession of the debtor, he takes
7 priority over the rights of a transferee in bulk or of a lien
8 creditor which arise between the time the security interest
9 attaches and the time of filing.
10 (c) Definition of "lien creditor".--A "lien creditor" means
11 a creditor who has acquired a lien on the property involved by
12 attachment, levy or the like and includes an assignee for
13 benefit of creditors from the time of assignment, and a trustee
14 in bankruptcy from the date of the filing of the petition or a
15 receiver in equity from the time of appointment. Unless all the
16 creditors represented had knowledge of the security interest
17 such a representative of creditors is a lien creditor without
18 knowledge even though he personally has knowledge of the
19 security interest.
20 § 9302. When filing is required to perfect security interest;
21 security interests to which filing provisions of
22 division do not apply.
23 (a) General rule.--A financing statement must be filed to
24 perfect all security interests except the following:
25 (1) a security interest in collateral in possession of
26 the secured party under section 9305 (relating to when
27 possession by secured party perfects security interest
28 without filing);
29 (2) a security interest temporarily perfected in
30 instruments or documents without delivery under section 9304
19790S0372B0376 - 298 -
1 (relating to perfection of security interest in instruments,
2 documents, and goods covered by documents) or in proceeds for
3 a ten-day period under section 9306 (relating to "proceeds";
4 rights of secured party on disposition of collateral);
5 (3) a purchase money security interest in farm equipment
6 having a purchase price not in excess of $2,500; but filing
7 is required for a fixture under section 9313 (relating to
8 priority of security interests in fixtures) or for a motor
9 vehicle required to be licensed;
10 (4) a purchase money security interest in consumer
11 goods; but filing is required for a fixture under section
12 9313 or for a motor vehicle required to be licensed;
13 (5) an assignment of accounts or contract rights which
14 does not alone or in conjunction with other assignments to
15 the same assignee transfer a significant part of the
16 outstanding accounts or contract rights of the assignor; and
17 (6) a security interest of a collecting bank (section
18 4208) or arising under Division 2 (relating to sales) (see
19 section 9113) or covered in subsection (c).
20 (b) Assignment of perfected security interest.--If a secured
21 party assigns a perfected security interest, no filing under
22 this division is required in order to continue the perfected
23 status of the security interest against creditors of and
24 transferees from the original debtor.
25 (c) When filing provisions of division inapplicable.--The
26 filing provisions of this division do not apply to a security
27 interest in property subject to a statute:
28 (1) of the United States which provides for a national
29 registration or filing of all security interests in such
30 property; or
19790S0372B0376 - 299 -
1 (2) of this Commonwealth which provides for central
2 filing of security interests in such property, or in a motor
3 vehicle which is not inventory held for sale for which a
4 certificate of title is required under the statutes of this
5 Commonwealth if a notation of such a security interest can be
6 indicated by a public official on a certificate or a
7 duplicate thereof.
8 (d) Method of perfection when filing provisions
9 inapplicable.--A security interest in property covered by a
10 statute described in subsection (c) can be perfected only by
11 registration or filing under that statute or by indication of
12 the security interest on a certificate of title or a duplicate
13 thereof by a public official.
14 § 9303. When security interest is perfected; continuity of
15 perfection.
16 (a) When security interest is perfected.--A security
17 interest is perfected when it has attached and when all of the
18 applicable steps required for perfection have been taken. Such
19 steps are specified in section 9302 (relating to when filing is
20 required to perfect security interest), section 9304 (relating
21 to perfection of security interest in instruments, documents and
22 goods covered by documents), section 9305 (relating to when
23 possession by secured party perfects security interest without
24 filing) and section 9306 (relating to "proceeds"; rights of
25 secured party on disposition of collateral). If such steps are
26 taken before the security interest attaches, it is perfected at
27 the time when it attaches.
28 (b) Continuity of perfection.--If a security interest is
29 originally perfected in any way permitted under this division
30 and is subsequently perfected in some other way under this
19790S0372B0376 - 300 -
1 division, without an intermediate period when it was
2 unperfected, the security interest shall be deemed to be
3 perfected continuously for the purposes of this division.
4 § 9304. Perfection of security interest in instruments,
5 documents and goods covered by documents; perfection
6 by permissive filing; temporary perfection without
7 filing or transfer of possession.
8 (a) Chattel paper, negotiable documents and instruments.--A
9 security interest in chattel paper or negotiable documents may
10 be perfected by filing. A security interest in instruments
11 (other than instruments which constitute part of chattel paper)
12 can be perfected only by the secured party's taking possession,
13 except as provided in subsections (d) and (e).
14 (b) Goods in possession of issuer of negotiable document
15 therefor.--During the period that goods are in the possession of
16 the issuer of a negotiable document therefor, a security
17 interest in the goods is perfected by perfecting a security
18 interest in the document, and any security interest in the goods
19 otherwise perfected during such period is subject thereto.
20 (c) Goods in possession of bailee.--A security interest in
21 goods in the possession of a bailee other than one who has
22 issued a negotiable document therefor is perfected by issuance
23 of a document in the name of the secured party or by the receipt
24 by the bailee of notification of the interest of the secured
25 party or by filing as to the goods.
26 (d) Temporary perfection for new value given.--A security
27 interest in instruments or negotiable documents is perfected
28 without filing or the taking of possession for a period of 21
29 days from the time it attaches to the extent that it arises for
30 new value given under a written security agreement.
19790S0372B0376 - 301 -
1 (e) Temporary perfection on transfer of possession.--A
2 security interest remains perfected for a period of 21 days
3 without filing where a secured party having a perfected security
4 interest in an instrument, a negotiable document or goods in
5 possession of a bailee other than one who has issued a
6 negotiable document therefor:
7 (1) makes available to the debtor the goods or documents
8 representing the goods for the purpose of ultimate sale or
9 exchange or for the purpose of loading, unloading, storing,
10 shipping, transshipping, manufacturing, processing or
11 otherwise dealing with them in a manner preliminary to their
12 sale or exchange; or
13 (2) delivers the instrument to the debtor for the
14 purpose of ultimate sale or exchange or of presentation,
15 collection, renewal or registration of transfer.
16 (f) Expiration of period of temporary perfection.--After the
17 21-day period in subsections (d) and (e) perfection depends upon
18 compliance with applicable provisions of this division.
19 § 9305. When possession by secured party perfects security
20 interest without filing.
21 A security interest in letters of credit and advices of
22 credit (section 5116(b)(1)), goods, instruments, negotiable
23 documents or chattel paper may be perfected by the secured
24 party's taking possession of the collateral. If such collateral
25 other than goods covered by a negotiable document is held by a
26 bailee, the secured party is deemed to have possession from the
27 time the bailee receives notification of the interest of the
28 secured party. A security interest is perfected by possession
29 from the time possession is taken without relation back and
30 continues only so long as possession is retained, unless
19790S0372B0376 - 302 -
1 otherwise specified in this division.
2 The security interest may be otherwise perfected as provided
3 in this division before or after the period of possession by the
4 secured party.
5 § 9306. "Proceeds"; rights of secured party on disposition
6 of collateral.
7 (a) Definition of "proceeds".--"Proceeds" includes whatever
8 is received when collateral or proceeds is sold, exchanged,
9 collected or otherwise disposed of. The term also includes the
10 account arising when the right to payment is earned under a
11 contract right. Money, checks and the like are "cash proceeds."
12 All other proceeds are "noncash proceeds."
13 (b) Continuity of security interest in collateral and
14 identifiable proceeds.--Except where this division otherwise
15 provides, a security interest continues in collateral
16 notwithstanding sale, exchange or other disposition thereof by
17 the debtor unless his action was authorized by the secured party
18 in the security agreement or otherwise, and also continues in
19 any identifiable proceeds including collections received by the
20 debtor.
21 (c) Status of security interest in proceeds.--The security
22 interest in proceeds is a continuously perfected security
23 interest if the interest in the original collateral was
24 perfected but it ceases to be a perfected security interest and
25 becomes unperfected ten days after receipt of the proceeds by
26 the debtor unless:
27 (1) a filed financing statement covering the original
28 collateral also covers proceeds; or
29 (2) the security interest in the proceeds is perfected
30 before the expiration of the ten-day period.
19790S0372B0376 - 303 -
1 (d) Effect of insolvency proceedings.--In the event of
2 insolvency proceedings instituted by or against a debtor, a
3 secured party with a perfected security interest in proceeds has
4 a perfected security interest:
5 (1) in identifiable noncash proceeds;
6 (2) in identifiable cash proceeds in the form of money
7 which is not commingled with other money or deposited in a
8 bank account prior to the insolvency proceedings;
9 (3) in identifiable cash proceeds in the form of checks
10 and the like which are not deposited in a bank account prior
11 to the insolvency proceedings; and
12 (4) in all cash and bank accounts of the debtor, if
13 other cash proceeds have been commingled or deposited in a
14 bank account, but the perfected security interest under this
15 paragraph (4) is:
16 (i) subject to any right of set-off; and
17 (ii) limited to an amount not greater than the
18 amount of any cash proceeds received by the debtor within
19 ten days before the institution of the insolvency
20 proceedings and commingled or deposited in a bank account
21 prior to the insolvency proceedings less the amount of
22 cash proceeds received by the debtor and paid over to the
23 secured party during the ten-day period.
24 (e) Priority of security interests in returned or
25 repossessed goods.--If a sale of goods results in an account or
26 chattel paper which is transferred by the seller to a secured
27 party, and if the goods are returned to or are repossessed by
28 the seller or the secured party, the following rules determine
29 priorities:
30 (1) If the goods are collateral at the time of sale for
19790S0372B0376 - 304 -
1 an indebtedness of the seller which is still unpaid, the
2 original security interest attaches again to the goods and
3 continues as a perfected security interest if it was
4 perfected at the time when the goods were sold. If the
5 security interest was originally perfected by a filing which
6 is still effective, nothing further is required to continue
7 the perfected status; in any other case, the secured party
8 must take possession of the returned or repossessed goods or
9 must file.
10 (2) An unpaid transferee of the chattel paper has a
11 security interest in the goods against the transferor. Such
12 security interest is prior to a security interest asserted
13 under paragraph (1) to the extent that the transferee of the
14 chattel paper was entitled to priority under section 9308
15 (relating to purchase of chattel paper and nonnegotiable
16 instruments).
17 (3) An unpaid transferee of the account has a security
18 interest in the goods against the transferor. Such security
19 interest is subordinate to a security interest asserted under
20 paragraph (1).
21 (4) A security interest of an unpaid transferee asserted
22 under paragraph (2) or (3) must be perfected for protection
23 against creditors of the transferor and purchasers of the
24 returned or repossessed goods.
25 § 9307. Protection of buyers of goods.
26 (a) Buyer in ordinary course of business.--A buyer in
27 ordinary course of business (section 1201 (relating to general
28 definitions)) other than a person buying farm products from a
29 person engaged in farming operations takes free of a security
30 interest created by his seller even though the security interest
19790S0372B0376 - 305 -
1 is perfected and even though the buyer knows of its existence.
2 (b) Buyer of consumer goods and certain farm equipment.--In
3 the case of consumer goods and in the case of farm equipment
4 having an original purchase price not in excess of $2,500 (other
5 than fixtures, see section 9313), a buyer takes free of a
6 security interest even though perfected if he buys without
7 knowledge of the security interest, for value and for his own
8 personal, family or household purposes or his own farming
9 operations unless prior to the purchase the secured party has
10 filed a financing statement covering such goods.
11 § 9308. Purchase of chattel paper and nonnegotiable
12 instruments.
13 A purchaser of chattel paper or a nonnegotiable instrument
14 who gives new value and takes possession of it in the ordinary
15 course of his business and without knowledge that the specific
16 paper or instrument is subject to a security interest has
17 priority over a security interest which is perfected under
18 section 9304 (relating to perfection of security interest in
19 instruments, documents, and goods covered by documents;
20 perfection by permissive filing; temporary perfection without
21 filing or transfer of possession). A purchaser of chattel paper
22 who gives new value and takes possession of it in the ordinary
23 course of his business has priority over a security interest in
24 chattel paper which is claimed merely as proceeds of inventory
25 subject to a security interest (section 9306), even though he
26 knows that the specific paper is subject to the security
27 interest.
28 § 9309. Protection of purchasers of instruments and documents.
29 Nothing in this division limits the rights of a holder in due
30 course of a negotiable instrument (section 3302) or a holder to
19790S0372B0376 - 306 -
1 whom a negotiable document of title has been duly negotiated
2 (section 7501) or a bona fide purchaser of a security (section
3 8301) and such holders or purchasers take priority over an
4 earlier security interest even though perfected. Filing under
5 this division does not constitute notice of the security
6 interest to such holders or purchasers.
7 § 9310. Priority of certain liens arising by operation of law.
8 When a person in the ordinary course of his business
9 furnishes services or materials with respect to goods subject to
10 a security interest, a lien upon goods in the possession of such
11 person given by statute or rule of law for such materials or
12 services takes priority over a perfected security interest
13 unless the lien is statutory and the statute expressly provides
14 otherwise.
15 § 9311. Alienability of rights of debtor; judicial process.
16 The rights of a debtor in collateral may be voluntarily or
17 involuntarily transferred (by way of sale, creation of a
18 security interest, attachment, levy, garnishment or other
19 judicial process) notwithstanding a provision in the security
20 agreement prohibiting any transfer or making the transfer
21 constitute a default.
22 § 9312. Priorities among conflicting security interests in
23 same collateral.
24 (a) Precedence of certain rules of priority.--The rules of
25 priority stated in the following sections shall govern where
26 applicable:
27 Section 4208 (relating to security interest of collecting
28 bank in items, accompanying documents and proceeds).
29 Section 9301 (relating to persons who take priority over
30 unperfected security interests).
19790S0372B0376 - 307 -
1 Section 9304 (relating to perfection of security interest
2 in instruments, documents, and goods covered by documents).
3 Section 9306 (relating to "proceeds"; rights of secured
4 party on disposition of collateral).
5 Section 9307 (relating to protection of buyers of goods).
6 Section 9308 (relating to purchase of chattel paper and
7 nonnegotiable instruments).
8 Section 9309 (relating to protection of purchasers of
9 instruments and documents).
10 Section 9310 (relating to priority of certain liens
11 arising by operation of law).
12 Section 9313 (relating to priority of security interests
13 in fixtures).
14 Section 9314 (relating to accessions).
15 Section 9315 (relating to priority when goods are
16 commingled or processed).
17 Section 9316 (relating to priority subject to
18 subordination).
19 (b) Security interests in crops.--A perfected security
20 interest in crops for new value given to enable the debtor to
21 produce the crops during the production season and given not
22 more than three months before the crops become growing crops by
23 planting or otherwise takes priority over an earlier perfected
24 security interest to the extent that such earlier interest
25 secures obligations due more than six months before the crops
26 become growing crops by planting or otherwise, even though the
27 person giving new value had knowledge of the earlier security
28 interest.
29 (c) Purchase money security interests in inventory.--A
30 purchase money security interest in inventory collateral has
19790S0372B0376 - 308 -
1 priority over a conflicting security interest in the same
2 collateral if:
3 (1) the purchase money security interest is perfected at
4 the time the debtor receives possession of the collateral;
5 (2) any secured party whose security interest is known
6 to the holder of the purchase money security interest or who,
7 prior to the date of the filing made by the holder of the
8 purchase money security interest, had filed a financing
9 statement covering the same items or type of inventory, has
10 received notification of the purchase money security interest
11 before the debtor receives possession of the collateral
12 covered by the purchase money security interest; and
13 (3) such notification states that the person giving the
14 notice has or expects to acquire a purchase money security
15 interest in inventory of the debtor, describing such
16 inventory by item or type.
17 (d) Other purchase money security interests.--A purchase
18 money security interest in collateral other than inventory has
19 priority over a conflicting security interest in the same
20 collateral if the purchase money security interest is perfected
21 at the time the debtor receives possession of the collateral or
22 within ten days thereafter.
23 (e) Rules of priority in absence of other rules.--In all
24 cases not governed by other rules stated in this section
25 (including cases of purchase money security interests which do
26 not qualify for the special priorities set forth in subsections
27 (c) and (d)), priority between conflicting security interests in
28 the same collateral shall be determined as follows:
29 (1) in the order of filing if both are perfected by
30 filing, regardless of which security interest attached first
19790S0372B0376 - 309 -
1 under section 9204(a) (relating to when security interest
2 attaches) and whether it attached before or after filing:
3 (2) in the order of perfection unless both are perfected
4 by filing, regardless of which security interest attached
5 first under section 9204(a) and, in the case of a filed
6 security interest, whether it attached before or after
7 filing; and
8 (3) in the order of attachment under section 9204(a) so
9 long as neither is perfected.
10 (f) Status of continuously perfected security interest.--For
11 the purpose of the priority rules of subsection (e), a
12 continuously perfected security interest shall be treated at all
13 times as if perfected by filing if it was originally so
14 perfected and it shall be treated at all times as if perfected
15 otherwise than by filing if it was originally perfected
16 otherwise than by filing.
17 § 9313. Priority of security interests in fixtures.
18 (a) Applicability of section.--The rules of this section do
19 not apply to goods incorporated into a structure in the manner
20 of lumber, bricks, tile, cement, glass, metal work and the like
21 and no security interest in them exists under this division
22 unless the structure remains personal property under applicable
23 law. The law of this Commonwealth other than this title
24 determines whether and when other goods become fixtures. This
25 title does not prevent creation of an encumbrance upon fixtures
26 or real estate pursuant to the law applicable to real estate.
27 (b) Attachment of interest before goods become fixtures.--A
28 security interest which attaches to goods before they become
29 fixtures takes priority as to the goods over the claims of all
30 persons who have an interest in the real estate except as stated
19790S0372B0376 - 310 -
1 in subsection (d).
2 (c) Attachment of interest after goods become fixtures.--A
3 security interest which attaches to goods after they become
4 fixtures is valid against all persons subsequently acquiring
5 interests in the real estate except as stated in subsection (d)
6 but is invalid against any person with an interest in the real
7 estate at the time the security interest attaches to the goods
8 who has not in writing consented to the security interest or
9 disclaimed an interest in the goods as fixtures.
10 (d) Subordination of fixture security interests.--The
11 security interests described in subsections (b) and (c) do not
12 take priority over:
13 (1) a subsequent purchaser for value of any interest in
14 the real estate;
15 (2) a creditor with a lien on the real estate
16 subsequently obtained by judicial proceedings; or
17 (3) a creditor with a prior encumbrance of record on the
18 real estate to the extent that he makes subsequent advances;
19 if the subsequent purchase is made, the lien by judicial
20 proceedings is obtained, or the subsequent advance under the
21 prior encumbrance is made or contracted for without knowledge of
22 the security interest and before it is perfected. A purchaser of
23 the real estate at a foreclosure sale other than an encumbrancer
24 purchasing at his own foreclosure sale is a subsequent purchaser
25 within this section.
26 (e) Removal of fixtures upon default.--When under
27 subsections (b) or (c) and (d) a secured party has priority over
28 the claims of all persons who have interests in the real estate,
29 he may, on default, subject to the provisions of Chapter 95
30 (relating to default), remove his collateral from the real
19790S0372B0376 - 311 -
1 estate but he must reimburse any encumbrancer or owner of the
2 real estate who is not the debtor and who has not otherwise
3 agreed for the cost of repair of any physical injury, but not
4 for any diminution in value of the real estate caused by the
5 absence of the goods removed or by any necessity for replacing
6 them. A person entitled to reimbursement may refuse permission
7 to remove until the secured party gives adequate security for
8 the performance of this obligation.
9 § 9314. Accessions.
10 (a) Priority of security interest attaching before
11 accession.--A security interest in goods which attaches before
12 they are installed in or affixed to other goods takes priority
13 as to the goods installed or affixed (called in this section
14 "accessions") over the claims of all persons to the whole except
15 as stated in subsection (c) and subject to section 9315(a)
16 (relating to priority when goods are commingled or processed).
17 (b) Priority of security interest attaching after
18 accession.--A security interest which attaches to goods after
19 they become part of a whole is valid against all persons
20 subsequently acquiring interests in the whole except as stated
21 in subsection (c) but is invalid against any person with an
22 interest in the whole at the time the security interest attaches
23 to the goods who has not in writing consented to the security
24 interest or disclaimed an interest in the goods as part of the
25 whole.
26 (c) Subordination of accession security interests.--The
27 security interests described in subsections (a) and (b) do not
28 take priority over:
29 (1) a subsequent purchaser for value of any interest in
30 the whole;
19790S0372B0376 - 312 -
1 (2) a creditor with a lien on the whole subsequently
2 obtained by judicial proceedings; or
3 (3) a creditor with a prior perfected security interest
4 in the whole to the extent that he makes subsequent advances;
5 if the subsequent purchase is made, the lien by judicial
6 proceedings obtained or the subsequent advance under the prior
7 perfected security interest is made or contracted for without
8 knowledge of the security interest and before it is perfected. A
9 purchaser of the whole at a foreclosure sale other than the
10 holder of a perfected security interest purchasing at his own
11 foreclosure sale is a subsequent purchaser within this section.
12 (d) Removal of accession upon default.--When under
13 subsection (a), (b) or (c) a secured party has an interest in
14 accessions which has priority over the claims of all persons who
15 have interests in the whole, he may, on default, subject to the
16 provisions of Chapter 95 (relating to default) remove his
17 collateral from the whole but he must reimburse any encumbrancer
18 or owner of the whole who is not the debtor and who has not
19 otherwise agreed for the cost of repair of any physical injury
20 but not for any diminution in value of the whole caused by the
21 absence of the goods removed or by any necessity for replacing
22 them. A person entitled to reimbursement may refuse permission
23 to remove until the secured party gives adequate security for
24 the performance of this obligation.
25 § 9315. Priority when goods are commingled or processed.
26 (a) General rule.--If a security interest in goods was
27 perfected and subsequently the goods or a part thereof have
28 become part of a product or mass, the security interest
29 continues in the product or mass if:
30 (1) the goods are so manufactured, processed, assembled
19790S0372B0376 - 313 -
1 or commingled that their identity is lost in the product or
2 mass; or
3 (2) a financing statement covering the original goods
4 also covers the product into which the goods have been
5 manufactured, processed or assembled.
6 In a case to which paragraph (2) applies, no separate security
7 interest in that part of the original goods which has been
8 manufactured, processed or assembled into the product may be
9 claimed under section 9314 (relating to accessions).
10 (b) Multiple security interests.--When under subsection (a)
11 more than one security interest attaches to the product or mass,
12 they rank equally according to the ratio that the cost of the
13 goods to which each interest originally attached bears to the
14 cost of the total product or mass.
15 § 9316. Priority subject to subordination.
16 Nothing in this division prevents subordination by agreement
17 by any person entitled to priority.
18 § 9317. Secured party not obligated on contract of debtor.
19 The mere existence of a security interest or authority given
20 to the debtor to dispose of or use collateral does not impose
21 contract or tort liability under the secured party for the acts
22 or omissions of the debtor.
23 § 9318. Defenses against assignee; modification of contract
24 after notification of assignment; term prohibiting
25 assignment ineffective; identification and proof of
26 assignment.
27 (a) Rights of account debtor against assignee.--Unless an
28 account debtor has made an enforceable agreement not to assert
29 defenses or claims arising out of a sale as provided in section
30 9206 (relating to agreement not to assert defenses against
19790S0372B0376 - 314 -
1 assignee) the rights of an assignee are subject to:
2 (1) all the terms of the contract between the account
3 debtor and assignor and any defense or claim arising
4 therefrom; and
5 (2) any other defense or claim of the account debtor
6 against the assignor which accrues before the account debtor
7 receives notification of the assignment.
8 (b) Effect of contract modification on assignee.--So far as
9 the right to payment under an assigned contract right has not
10 already become an account, and notwithstanding notification of
11 the assignment, any modification of or substitution for the
12 contract made in good faith and in accordance with reasonable
13 commercial standards is effective against an assignee unless the
14 account debtor has otherwise agreed but the assignee acquires
15 corresponding rights under the modified or substituted contract.
16 The assignment may provide that such modification or
17 substitution is a breach by the assignor.
18 (c) Notification to account debtor of assignment.--The
19 account debtor is authorized to pay the assignor until the
20 account debtor receives notification that the account has been
21 assigned and that payment is to be made to the assignee. A
22 notification which does not reasonably identify the rights
23 assigned is ineffective. If requested by the account debtor, the
24 assignee must seasonably furnish reasonable proof that the
25 assignment has been made and unless he does so the account
26 debtor may pay the assignor.
27 (d) Contract term prohibiting assignment ineffective.--A
28 term in any contract between an account debtor and an assignor
29 which prohibits assignment of an account or contract right to
30 which they are parties is ineffective.
19790S0372B0376 - 315 -
1 CHAPTER 94
2 FILING
3 Sec.
4 9401. Place of filing; erroneous filing; removal of collateral.
5 9402. Formal requisites of financing statement; amendments.
6 9403. What constitutes filing; duration of filing; effect of
7 lapsed filing; duties of filing officer.
8 9404. Termination statement.
9 9405. Assignment of security interest; duties of filing
10 officer.
11 9406. Release of collateral; duties of filing officer.
12 9407. Information from filing officer.
13 9408. Retention of microfilm or other copies in lieu of
14 originals; admissibility of copies in evidence; duties of
15 filing officer.
16 9409. (Reserved).
17 9410. Duties of filing officer.
18 § 9401. Place of filing; erroneous filing; removal of
19 collateral.
20 (a) Place of filing.--The proper place to file in order to
21 perfect a security interest is as follows:
22 (1) When the collateral is equipment used in farming
23 operations, or farm products, or accounts, contract rights or
24 general intangibles arising from or relating to the sale of
25 farm products by a farmer, or consumer goods, then in the
26 office of the prothonotary in the county of the residence of
27 the debtor or if the debtor is not a resident of this
28 Commonwealth then in the office of the prothonotary in the
29 county where the goods are kept, and in addition when the
30 collateral is crops in the office of the prothonotary in the
19790S0372B0376 - 316 -
1 county where the land on which the crops are growing or to be
2 grown is located.
3 (2) When the collateral is goods which at the time the
4 security interest attaches are or are to become fixtures,
5 then in the office where a mortgage on the real estate
6 concerned would be filed or recorded.
7 (3) In all other cases, in the office of the Secretary
8 of the Commonwealth and in addition, if the debtor has a
9 place of business in only one county of this Commonwealth,
10 also in the office of the prothonotary of such county, or, if
11 the debtor has no place of business in this Commonwealth, but
12 resides in the Commonwealth, also in the office of the
13 prothonotary of the county in which he resides.
14 (b) Effect of partially valid filing.--A filing which is
15 made in good faith in an improper place or not in all of the
16 places required by this section is nevertheless effective with
17 regard to any collateral as to which the filing complied with
18 the requirements of this division and is also effective with
19 regard to collateral covered by the financing statement against
20 any person who has knowledge of the contents of such financing
21 statement.
22 (c) Effect of change in location of debtor or collateral.--A
23 filing which is made in the proper county continues effective
24 for four months after a change to another county of the
25 residence of the debtor or place of business or the location of
26 the collateral, whichever controlled the original filing. It
27 becomes ineffective thereafter unless a copy of the financing
28 statement signed by the secured party is filed in the new county
29 within said period. The security interest may also be perfected
30 in the new county after the expiration of the four-month period;
19790S0372B0376 - 317 -
1 in such case perfection dates from the time of perfection in the
2 new county. A change in the use of the collateral does not
3 impair the effectiveness of the original filing.
4 (d) Filing requirements when collateral brought into
5 Commonwealth.--If collateral is brought into this Commonwealth
6 from another jurisdiction, the rules stated in section 9103
7 (relating to accounts, contract rights, general intangibles and
8 equipment relating to another jurisdiction; and incoming goods
9 already subject to a security interest) determine whether filing
10 is necessary in this Commonwealth.
11 § 9402. Formal requisites of financing statement; amendments.
12 (a) General rule.--A financing statement is sufficient if it
13 is signed by the debtor and the secured party, gives an address
14 of the secured party from which information concerning the
15 security interest may be obtained, gives a mailing address of
16 the debtor and contains a statement indicating the types, or
17 describing the items, of collateral. A financing statement may
18 be filed before a security agreement is made or a security
19 interest otherwise attaches. When the financing statement covers
20 crops growing or to be grown or goods which are or are to become
21 fixtures, the statement must also contain a description of the
22 real estate concerned. A copy of the security agreement is
23 sufficient as a financing statement if it contains the above
24 information and is signed by both parties.
25 (b) Effect when signed only by secured party.--A financing
26 statement which otherwise complies with subsection (a) is
27 sufficient although it is signed only by the secured party when
28 it is filed to perfect a security interest in the following:
29 (1) Collateral already subject to a security interest in
30 another jurisdiction when it is brought into this
19790S0372B0376 - 318 -
1 Commonwealth. Such a financing statement must state that the
2 collateral was brought into this Commonwealth under such
3 circumstances.
4 (2) Proceeds under section 9306 (relating to "proceeds";
5 rights of secured party on disposition of collateral), if the
6 security interest in the original collateral was perfected.
7 Such a financing statement must describe the original
8 collateral.
9 (c) Form.--A form substantially as follows is sufficient to
10 comply with subsection (a):
11 Name of debtor (or assignor).................................
12 Address:.....................................................
13 Name of secured party (or assignee)..........................
14 Address:.....................................................
15 1. This financing statement covers the following types
16 (or items) of property:
17 (Describe). . . . . . .
18 2. (If collateral is crops) The above described crops
19 are growing or are to be grown on:
20 (Describe Real Estate). . . . . . .
21 3. (If collateral is goods which are or are to become
22 fixtures) The above described goods are affixed or to be
23 affixed to:
24 (Describe Real Estate). . . . . . .
25 4. (If proceeds or products of collateral are claimed)
26 (Proceeds)--(Products) of the collateral are also covered
27 Signature of Debtor (or Assignor)
28 Signature of Secured Party (or Assignee)
29 (d) Amendments.--The term "financing statement" as used in
30 this division means the original financing statement and any
19790S0372B0376 - 319 -
1 amendments but if any amendment adds collateral, it is effective
2 as to the added collateral only from the filing date of the
3 amendment.
4 (e) Effect of minor errors.--A financing statement
5 substantially complying with the requirements of this section is
6 effective even though it contains minor errors which are not
7 seriously misleading.
8 § 9403. What constitutes filing; duration of filing; effect of
9 lapsed filing; duties of filing officer.
10 (a) What constitutes filing.--Presentation for filing of a
11 financing statement and tender of the filing fee or acceptance
12 of the statement by the filing officer constitutes filing under
13 this division.
14 (b) Duration of effectiveness of filing.--A filed financing
15 statement which states a maturity date of the obligation secured
16 of five years or less is effective until such maturity date and
17 thereafter for a period of 60 days. Any other filed financing
18 statement is effective for a period of five years from the date
19 of filing. The effectiveness of a filed financing statement
20 lapses on the expiration of such 60-day period after a stated
21 maturity date or on the expiration of such five-year period, as
22 the case may be, unless a continuation statement is filed prior
23 to the lapse. Upon such lapse the security interest becomes
24 unperfected. A filed financing statement which states that the
25 obligation secured is payable on demand is effective for five
26 years from the date of filing.
27 (c) Continuation statement.--A continuation statement may be
28 filed by the secured party (i) within six months before and 60
29 days after a stated maturity date of five years or less, and
30 (ii) otherwise within six months prior to the expiration of the
19790S0372B0376 - 320 -
1 five-year period specified in subsection (b). Any such
2 continuation statement must be signed by the secured party,
3 identify the original statement by file number and state that
4 the original statement is still effective. Upon timely filing of
5 the continuation statement, the effectiveness of the original
6 statement is continued for five years after the last date to
7 which the filing was effective whereupon it lapses in the same
8 manner as provided in subsection (b) unless another continuation
9 statement is filed prior to such lapse. Succeeding continuation
10 statements may be filed in the same manner to continue the
11 effectiveness of the original statement. Unless a statute on
12 disposition of public records provides otherwise, the filing
13 officer may remove a lapsed statement from the files and destroy
14 it.
15 (d) Duties of filing officer.--A filing officer shall mark
16 each statement with a consecutive file number and with the date
17 and hour of filing and shall hold the statement for public
18 inspection. In addition the filing officer shall index the
19 statements according to the name of the debtor and shall note in
20 the index the file number and the address of the debtor given in
21 the statement. The Secretary of the Commonwealth shall not be
22 required to index the statement according to the name of the
23 secured party.
24 § 9404. Termination statement.
25 (a) General rule.--Whenever there is no outstanding secured
26 obligation and no commitment to make advances, incur obligations
27 or otherwise give value, the secured party must on written
28 demand by the debtor send the debtor a statement that he no
29 longer claims a security interest under the financing statement,
30 which shall be identified by file number. A termination
19790S0372B0376 - 321 -
1 statement signed by a person other than the secured party of
2 record must include or be accompanied by the assignment or a
3 statement by the secured party of record that he has assigned
4 the security interest to the signer of the termination
5 statement. If the affected secured party fails to send such a
6 termination statement within ten days after proper demand
7 therefor he shall be liable to the debtor for $100, and in
8 addition for any loss caused to the debtor by such failure.
9 (b) Duties of filing officer.--On presentation to the filing
10 officer of such a termination statement he must note it in the
11 index. Unless a statute on disposition of public records
12 provides otherwise, the filing officer shall remove the
13 financing statement from the files, mark it "terminated" and
14 send or deliver the financing statement to the secured party.
15 § 9405. Assignment of security interest; duties of filing
16 officer.
17 (a) Assignment disclosed in financing statement.--A
18 financing statement may disclose an assignment of a security
19 interest in the collateral described in the statement by
20 indication in the statement of the name and address of the
21 assignee or by an assignment itself or a copy thereof on the
22 face or back of the statement. Either the original secured party
23 or the assignee may sign this statement as the secured party. On
24 presentation to the filing officer of such a financing statement
25 the filing officer shall mark the same as provided in section
26 9403(d) (relating to what constitutes filing).
27 (b) Separate statement of assignment.--A secured party may
28 assign of record all or a part of his rights under a financing
29 statement by the filing of a separate written statement of
30 assignment signed by the secured party of record and setting
19790S0372B0376 - 322 -
1 forth the name of the secured party of record and the debtor,
2 the file number and the date of filing of the financing
3 statement and the name and address of the assignee and
4 containing a description of the collateral assigned. A copy of
5 the assignment is sufficient as a separate statement if it
6 complies with the preceding sentence. On presentation to the
7 filing officer of such a separate statement, the filing officer
8 shall mark such separate statement with the date and hour of the
9 filing. He shall note the assignment on the index of the
10 financing statement.
11 (c) Status of assignee as secured party.--After the
12 disclosure or filing of an assignment under this section, the
13 assignee is the secured party of record.
14 § 9406. Release of collateral; duties of filing officer.
15 A secured party of record may by his signed statement release
16 all or a part of any collateral described in a filed financing
17 statement. The statement of release is sufficient if it contains
18 a description of the collateral being released, the name and
19 address of the debtor, the name and address of the secured
20 party, and the file number of the financing statement. Upon
21 presentation of such a statement to the filing officer he shall
22 mark the statement with the hour and date of filing and shall
23 note the same upon the margin of the index of the filing of the
24 financing statement.
25 § 9407. Information from filing officer.
26 (a) Marking copy of statement filed.--If the person filing
27 any financing statement, termination statement, statement of
28 assignment, or statement of release, furnishes the filing
29 officer a copy thereof, the filing officer shall upon request
30 note upon the copy the file number and date and hour of the
19790S0372B0376 - 323 -
1 filing of the original and deliver or send the copy to such
2 person.
3 (b) Furnishing certificates and copies.--Upon request of any
4 person, the filing officer shall issue his certificate showing
5 whether there is on file on the date and hour stated therein,
6 any presently effective financing statement naming a particular
7 debtor and any statement of assignment thereof and if there is,
8 giving the date and hour of filing of each such statement, the
9 file number thereof and the names and addresses of each secured
10 party therein.
11 § 9408. Retention of microfilm or other copies in lieu of
12 originals; admissibility of copies in evidence;
13 duties of filing officer.
14 In lieu of retaining the originals of any or all papers filed
15 with him, a filing officer may make microfilm, photographic,
16 photostatic or other copies of them which accurately reproduce
17 such originals and may thereafter dispose of the originals so
18 copied, and any copy so made shall be admissible in evidence in
19 any proceeding with the same effect as though it were an
20 original. If a filing officer upon making a copy of a paper
21 shall have disposed of the original, then upon the filing of a
22 termination statement the filing officer shall be relieved of
23 the duties imposed upon him by section 9404(b) (relating to
24 termination statement), but instead shall note the termination
25 statement on the index and shall send to the secured party an
26 acknowledgment of the filing of the termination statement.
27 § 9409. (Reserved).
28 § 9410. Duties of filing officer.
29 The duties of a filing officer prescribed in this chapter
30 shall relate only to clearly legible papers filed with him or
19790S0372B0376 - 324 -
1 submitted to him for filing. A filing officer shall promptly
2 return to the person submitting the same any paper which is not
3 clearly legible.
4 CHAPTER 95
5 DEFAULT
6 Sec.
7 9501. Default; procedure when security agreement covers both
8 real and personal property.
9 9502. Collection rights of secured party.
10 9503. Right of secured party to take possession after default.
11 9504. Right of secured party to dispose of collateral after
12 default; effect of disposition.
13 9505. Compulsory disposition of collateral; acceptance of
14 collateral as discharge of obligation.
15 9506. Right of debtor to redeem collateral.
16 9507. Liability of secured party for failure to comply with
17 chapter.
18 § 9501. Default; procedure when security agreement covers both
19 real and personal property.
20 (a) Rights and remedies of secured party.--When a debtor is
21 in default under a security agreement, a secured party has the
22 rights and remedies provided in this chapter. He may reduce his
23 claim to judgment, foreclose or otherwise enforce the security
24 interest by any available judicial procedure. If the collateral
25 is documents the secured party may proceed either as to the
26 documents or as to the goods covered thereby. A secured party in
27 possession has the rights, remedies and duties provided in
28 section 9207. The rights and remedies referred to in this
29 subsection are cumulative.
30 (b) Rights and remedies of debtor.--After default, the
19790S0372B0376 - 325 -
1 debtor has the rights and remedies provided in this chapter,
2 those provided in the security agreement and those provided in
3 section 9207.
4 (c) Limitation on waiver of certain provisions.--To the
5 extent that they give rights to the debtor and impose duties on
6 the secured party, the rules stated in the following provisions
7 of this title may not be waived or varied except as provided
8 with respect to compulsory disposition of collateral (section
9 9505(a)) and with respect to redemption of collateral (section
10 9506) but the parties may by agreement determine the standards
11 by which the fulfillment of these rights and duties is to be
12 measured if such standards are not manifestly unreasonable:
13 (1) Section 9502(b) and section 9504(b) insofar as they
14 require accounting for surplus proceeds of collateral.
15 (2) Section 9504(c) and section 9505(a) which deal with
16 disposition of collateral.
17 (3) Section 9505(b) which deals with acceptance of
18 collateral as discharge of obligation.
19 (4) Section 9506 which deals with redemption of
20 collateral.
21 (5) Section 9507(a) which deals with the liability of
22 secured party for failure to comply with this chapter.
23 (d) Rights of secured party when agreement covers real and
24 personal property.--If the security agreement covers both real
25 and personal property, the secured party may proceed under this
26 chapter as to the personal property or he may proceed as to both
27 the real and the personal property in accordance with his rights
28 and remedies in respect of the real property in which case the
29 provisions of this chapter do not apply.
30 (e) Reduction of secured claim to judgment.--When a secured
19790S0372B0376 - 326 -
1 party has reduced his claim to judgment the lien of any levy
2 which may be made upon his collateral by virtue of any execution
3 based upon the judgment shall relate back to the date of the
4 perfection of the security interest in such collateral. A
5 judicial sale, pursuant to such execution, is a foreclosure of
6 the security interest by judicial procedure within the meaning
7 of this section, and the secured party may purchase at the sale
8 and thereafter hold the collateral free of any other
9 requirements of this division.
10 § 9502. Collection rights of secured party.
11 (a) General rule.--When so agreed and in any event on
12 default the secured party is entitled to notify an account
13 debtor or the obligor on an instrument to make payment to him
14 whether or not the assignor was theretofore making collections
15 on the collateral, and also to take control of any proceeds to
16 which he is entitled under section 9306 (relating to "proceeds";
17 rights of secured party on disposition of collateral).
18 (b) Limitations.--A secured party who by agreement is
19 entitled to charge back uncollected collateral or otherwise to
20 full or limited recourse against the debtor and who undertakes
21 to collect from the account debtors or obligors must proceed in
22 a commercially reasonable manner and may deduct his reasonable
23 expenses of realization from the collections. If the security
24 agreement secures an indebtedness, the secured party must
25 account to the debtor for any surplus, and unless otherwise
26 agreed, the debtor is liable for any deficiency. But, if the
27 underlying transaction was a sale of accounts, contract rights,
28 or chattel paper, the debtor is entitled to any surplus or is
29 liable for any deficiency only if the security agreement so
30 provides.
19790S0372B0376 - 327 -
1 § 9503. Right of secured party to take possession after
2 default.
3 (a) General rule.--Unless otherwise agreed a secured party
4 has on default the right to take possession of the collateral.
5 In taking possession a secured party may proceed without
6 judicial process if this can be done without breach of the peace
7 or may proceed by action. If the security agreement so provides
8 the secured party may require the debtor to assemble the
9 collateral and make it available to the secured party at a place
10 to be designated by the secured party which is reasonably
11 convenient to both parties. Without removal a secured party may
12 render equipment unusable, and may dispose of collateral on the
13 premises of the debtor under section 9504 (relating to right of
14 secured party to dispose of collateral after default).
15 (b) Election to proceed by process of law.--If a secured
16 party elects to proceed by process of law he may proceed by writ
17 of replevin or otherwise.
18 § 9504. Right of secured party to dispose of collateral after
19 default; effect of disposition.
20 (a) Disposition of collateral and application of proceeds.--
21 A secured party after default may sell, lease or otherwise
22 dispose of any or all of the collateral in its then condition or
23 following any commercially reasonable preparation or processing.
24 Any sale of goods is subject to Division 2 (relating to sales).
25 The proceeds of disposition shall be applied in the order
26 following to:
27 (1) the reasonable expenses of retaking, holding,
28 preparing for sale, selling and the like and, to the extent
29 provided for in the agreement and not prohibited by law, the
30 reasonable attorneys' fees and legal expenses incurred by the
19790S0372B0376 - 328 -
1 secured party;
2 (2) the satisfaction of indebtedness secured by the
3 security interest under which the disposition is made; and
4 (3) the satisfaction of indebtedness secured by any
5 subordinate security interest in the collateral if written
6 notification of demand therefor is received before
7 distribution of the proceeds is completed. If requested by
8 the secured party, the holder of a subordinate security
9 interest must seasonably furnish reasonable proof of his
10 interest, and unless he does so, the secured party need not
11 comply with his demand.
12 (b) Rights of parties in case of surplus or deficiency.--If
13 the security interest secures an indebtedness, the secured party
14 must account to the debtor for any surplus, and unless otherwise
15 agreed, the debtor is liable for any deficiency. But if the
16 underlying transaction was a sale of accounts, contract rights,
17 or chattel paper, the debtor is entitled to any surplus or is
18 liable for any deficiency only if the security agreement so
19 provides.
20 (c) Manner of disposition.--Disposition of the collateral
21 may be by public or private proceedings and may be made by way
22 of one or more contracts. Sale or other disposition may be as a
23 unit or in parcels and at any time and place and on any terms
24 but every aspect of the disposition including the method,
25 manner, time, place and terms must be commercially reasonable.
26 Unless collateral is perishable or threatens to decline speedily
27 in value or is of a type customarily sold on a recognized
28 market, reasonable notification of the time and place of any
29 public sale or reasonable notification of the time after which
30 any private sale or other intended disposition is to be made
19790S0372B0376 - 329 -
1 shall be sent by the secured party to the debtor, and except in
2 the case of consumer goods to any other person who has a
3 security interest in the collateral and who has duly filed a
4 financing statement indexed in the name of the debtor in this
5 Commonwealth or who is known by the secured party to have a
6 security interest in the collateral. The secured party may buy
7 at any public sale and if the collateral is of a type
8 customarily sold in a recognized market or is of a type which is
9 the subject of widely distributed standard price quotations he
10 may buy at private sale.
11 (d) Rights of purchaser for value of disposed collateral.--
12 When collateral is disposed of by a secured party after default,
13 the disposition transfers to a purchaser for value all of the
14 rights of the debtor therein, discharges the security interest
15 under which it is made and any security interest or lien
16 subordinate thereto. The purchaser takes free of all such rights
17 and interests even though the secured party fails to comply with
18 the requirements of this chapter or of any judicial proceedings:
19 (1) in the case of a public sale, if the purchaser has
20 no knowledge of any defects in the sale and if he does not
21 buy in collusion with the secured party, other bidders or the
22 person conducting the sale; or
23 (2) in any other case, if the purchaser acts in good
24 faith.
25 (e) Right of subrogation of person liable to secured
26 party.--A person who is liable to a secured party under a
27 guaranty, indorsement, repurchase agreement or the like and who
28 receives a transfer of collateral from the secured party or is
29 subrogated to his rights has thereafter the rights and duties of
30 the secured party. Such a transfer of collateral is not a sale
19790S0372B0376 - 330 -
1 or disposition of the collateral under this division.
2 § 9505. Compulsory disposition of collateral; acceptance of
3 collateral as discharge of obligation.
4 (a) Compulsory disposition of collateral.--If the debtor has
5 paid 60% of the cash price in the case of a purchase money
6 security interest in consumer goods or 60% of the loan in the
7 case of another security interest in consumer goods, and has not
8 signed after default a statement renouncing or modifying his
9 rights under this chapter a secured party who has taken
10 possession of collateral must dispose of it under section 9504
11 (relating to right of secured party to dispose of collateral
12 after default) and if he fails to do so within 90 days after he
13 takes possession the debtor at his option may recover in
14 conversion or under section 9507(a) on liability of secured
15 party.
16 (b) Acceptance of collateral as discharge of obligation.--In
17 any other case involving consumer goods or any other collateral
18 a secured party in possession may, after default, propose to
19 retain the collateral in satisfaction of the obligation. Written
20 notice of such proposal shall be sent to the debtor and except
21 in the case of consumer goods to any other secured party who has
22 a security interest in the collateral and who has duly filed a
23 financing statement indexed in the name of the debtor in this
24 Commonwealth or is known by the secured party in possession to
25 have a security interest in it. If the debtor or other person
26 entitled to receive notification objects in writing within 30
27 days from the receipt of the notification or if any other
28 secured party objects in writing within 30 days after the
29 secured party obtains possession the secured party must dispose
30 of the collateral under section 9504. In the absence of such
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1 written objection the secured party may retain the collateral in
2 satisfaction of the obligation of the debtor.
3 § 9506. Right of debtor to redeem collateral.
4 At any time before the secured party has disposed of
5 collateral or entered into a contract for its disposition under
6 section 9504 (relating to right of secured party to dispose of
7 collateral after default) or before the obligation has been
8 discharged under section 9505(b) (relating to acceptance of
9 collateral as discharge of obligation) the debtor or any other
10 secured party may unless otherwise agreed in writing after
11 default redeem the collateral by tendering fulfillment of all
12 obligations secured by the collateral as well as the expenses
13 reasonably incurred by the secured party in retaking, holding
14 and preparing the collateral for disposition, in arranging for
15 the sale, and to the extent provided in the agreement and not
16 prohibited by law, his reasonable attorneys' fees and legal
17 expenses.
18 § 9507. Liability of secured party for failure to comply with
19 chapter.
20 (a) General rule.--If it is established that the secured
21 party is not proceeding in accordance with the provisions of
22 this chapter disposition may be ordered or restrained on
23 appropriate terms and conditions. If the disposition has
24 occurred the debtor or any person entitled to notification or
25 whose security interest has been made known to the secured party
26 prior to the disposition has a right to recover from the secured
27 party any loss caused by a failure to comply with the provisions
28 of this chapter. If the collateral is consumer goods, the debtor
29 has a right to recover in any event an amount not less than the
30 credit service charge plus 10% of the principal amount of the
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1 debt or the time price differential plus 10% of the cash price.
2 (b) Disposition in commercially reasonable manner.--The fact
3 that a better price could have been obtained by a sale at a
4 different time or in a different method from that selected by
5 the secured party is not of itself sufficient to establish that
6 the sale was not made in a commercially reasonable manner. If
7 the secured party either sells the collateral in the usual
8 manner in any recognized market therefor or if he sells at the
9 price current in such market at the time of his sale or if he
10 has otherwise sold in conformity with reasonable commercial
11 practices among dealers in the type of property sold he has sold
12 in a commercially reasonable manner. The principles stated in
13 the two preceding sentences with respect to sales also apply as
14 may be appropriate to other types of disposition. A disposition
15 which has been approved in any judicial proceeding or by any
16 bona fide creditors' committee or representative of creditors
17 shall conclusively be deemed to be commercially reasonable, but
18 this sentence does not indicate that any such approval must be
19 obtained in any case nor does it indicate that any disposition
20 not so approved is not commercially reasonable.
21 Section 2. Conforming amendments to Title 15.--Sections
22 7752(f) and 7946(b) of Title 15 are amended to read:
23 § 7752. Organization on a stock share basis.
24 * * *
25 (f) Applicability of the Uniform Commercial Code.--The
26 provisions of [the Uniform Commercial Code] Division 8 of Title
27 13 (relating to investment securities) shall not apply in any
28 manner to the shares of a nonprofit corporation.
29 § 7946. Effect of division.
30 * * *
19790S0372B0376 - 333 -
1 (b) Property rights.--Except as otherwise provided by order,
2 if any, obtained pursuant to section 7549(b) of this title
3 (relating to nondiversion of certain property), all the
4 property, real, personal, and mixed, and franchises of the
5 dividing corporation, and all debts due on whatever account to
6 it, including subscriptions for membership and other choses in
7 action belonging to it, shall be taken and deemed without
8 further act or deed to be transferred to and vested in the
9 resulting corporations on such a manner and basis and with such
10 effect as is specified in the plan of division, or per capita
11 among the resulting corporations, as tenants in common, if no
12 such specification is made in the plan. The resulting
13 corporations shall each thenceforth be responsible as separate
14 and distinct corporations only for such liabilities and
15 obligations as each corporation may undertake or incur in its
16 own name, but shall be liable inter se for the debts and
17 liabilities of the dividing corporation in the manner and on the
18 basis specified in the plan of division. No liens upon the
19 property of the dividing corporation shall be impaired by the
20 division. One or more, but less than all, of the resulting
21 corporations shall be free of all the liabilities and
22 obligations of the dividing corporation to the extent, if any,
23 specified in the plan, if no fraud of corporate creditors or
24 members without voting rights and if no violation of law shall
25 be effected thereby, and if all applicable provisions of
26 [Article 6 of the Uniform Commercial Code] Division 6 of Title
27 13 (relating to bulk transfers) and all other applicable
28 provisions of law are complied with. Otherwise, the liability of
29 the dividing corporation, or of its members, directors, or
30 officers, shall not be affected by the division, nor shall the
19790S0372B0376 - 334 -
1 rights of the creditors thereof or of any person dealing with
2 such corporation be impaired by such division, and, except as
3 otherwise provided in this section, any claim existing or action
4 or proceeding pending by or against such corporation may be
5 prosecuted to judgment as if such division had not taken place,
6 or the resulting corporations may be proceeded against or
7 substituted in its place as joint and several obligors on such
8 liability, regardless of any provision of the plan of division
9 apportioning the debts and liabilities of the dividing
10 corporation.
11 * * *
12 Section 3. Conforming amendment to Title 18.--Section 3932
13 of Title 18, added August 8, 1977 (P.L.184, No.49), is amended
14 to read:
15 § 3932. Theft of leased property.
16 (a) Offense defined.--A person who obtains personal property
17 under an agreement for the lease or rental of the property is
18 guilty of theft if he intentionally deals with the property as
19 his own.
20 (b) Definition.--As used in this section, a person "deals
21 with the property as his own" if he sells, secretes, destroys,
22 converts to his own use or otherwise disposes of the property.
23 (c) Presumption.--A person shall be prima facie presumed to
24 have intent if he:
25 (1) signs the lease or rental agreement with a name
26 other than his own and fails to return the property within
27 the time specified in the agreement; or
28 (2) fails to return the property to its owner within
29 seven days after a written demand to return the property is
30 delivered by registered or certified mail to the person's
19790S0372B0376 - 335 -
1 last known address.
2 (d) Exception.--This section shall not apply to secured
3 transactions as defined in [the act of April 6, 1953 (P.L.3,
4 No.1), known as the "Uniform Commercial Code."] Title 13
5 (relating to commercial code).
6 Section 4. Conforming amendment to Title 20.--Section
7 3321(d) of Title 20 is amended to read:
8 § 3321. Nominee registration; corporate fiduciary as
9 attorney-in-fact; deposit of securities in a
10 clearing corporation; book-entry securities.
11 * * *
12 (d) Deposit of securities in a clearing corporation.--A
13 personal representative holding securities in its fiduciary
14 capacity, any bank and trust company, trust company or National
15 bank holding securities as an attorney-in-fact pursuant to
16 subsection (c) of this section, is authorized to deposit or
17 arrange for the deposit of such securities in a clearing
18 corporation (as defined in [Article 8 of the Uniform Commercial
19 Code] Division 8 of Title 13 (relating to investment
20 securities)). When such securities are so deposited,
21 certificates representing securities of the same class of the
22 same issuer may be merged and held in bulk in the name of the
23 nominee of such clearing corporation with any other such
24 securities deposited in such clearing corporation by any person
25 regardless of the ownership of such securities, and certificates
26 of small denomination may be merged into one or more
27 certificates of larger denomination. The records of such
28 fiduciary and the records of such bank and trust company, trust
29 company or National bank acting as attorney-in-fact for a
30 personal representative shall at all times show the name of the
19790S0372B0376 - 336 -
1 party for whose account the securities are so deposited. Title
2 to such securities may be transferred by bookkeeping entry on
3 the books of such clearing corporation without physical delivery
4 of certificates representing such securities. A bank and trust
5 company, trust company or National bank so depositing securities
6 pursuant to this section shall be subject to such rules and
7 regulations as, in the case of State chartered institutions, the
8 Department of Banking and, in the case of National banking
9 associations, the comptroller of the currency may from time to
10 time issue including, without limitation, standards for, or the
11 method of making a determination of, the financial
12 responsibility of any clearing corporation in which securities
13 are deposited. A bank and trust company, trust company or
14 National bank acting as custodian for a personal representative
15 shall, on demand by the personal representative, certify in
16 writing to the personal representative the securities so
17 deposited by such bank and trust company, trust company or
18 National bank in such clearing corporation for the account of
19 such personal representative. A personal representative shall,
20 on demand by any party to a judicial proceeding for the
21 settlement of such personal representative's account or on
22 demand by the attorney for such party, certify in writing to
23 such party the securities deposited by such personal
24 representative in such clearing corporation for its account as
25 such personal representative.
26 * * *
27 Section 5. Conforming amendments to Title 42.--Sections
28 5305, 5501 and 5522(b) of Title 42 are amended to read:
29 § 5305. Corporate shares.
30 The tribunals of this Commonwealth shall have jurisdiction,
19790S0372B0376 - 337 -
1 whether or not the persons owning or claiming interests in the
2 shares or share certificates are subject to the jurisdiction of
3 the tribunals of this Commonwealth:
4 (1) Over shares in a corporation incorporated under the
5 laws of this Commonwealth (subject to the limitations of [the
6 act of April 6, 1953 (P.L.3, No.1), known as the "Uniform
7 Commercial Code"] Title 13 (relating to commercial code)).
8 (2) Over share certificates which are located within
9 this Commonwealth.
10 (3) Over shares in a corporation represented by share
11 certificates located within this Commonwealth if the law of
12 the jurisdiction of incorporation embodies the share in the
13 share certificates.
14 § 5501. Scope of chapter.
15 (a) General rule.--An action, proceeding or appeal must be
16 commenced within the time specified in or pursuant to this
17 chapter unless in the case of an action or proceeding a
18 different time is prescribed by this title or another statute
19 or, in the case of a civil action or proceeding, a shorter time
20 which is not manifestly unreasonable is prescribed by written
21 agreement.
22 (b) Uniform Commercial Code.--The provisions of [the act of
23 April 6, 1953 (P.L.3, No.1), known as the "Uniform Commercial
24 Code,"] Title 13 (relating to commercial code), to the extent
25 that they are inconsistent with this chapter, shall control over
26 the provisions of this chapter.
27 § 5522. Six months limitation.
28 * * *
29 (b) Commencement of action required.--The following actions
30 and proceedings must be commenced within six months:
19790S0372B0376 - 338 -
1 (1) An action against any officer of any government unit
2 for anything done in the execution of his office, except an
3 action subject to another limitation specified in this
4 subchapter.
5 (2) A petition for the establishment of a deficiency
6 judgment following sale of the collateral of the debtor under
7 the provisions of section 8103 (relating to deficiency
8 judgments).
9 (3) Any action subject to [section 6-111] 13 Pa.C.S. §
10 6111 (relating to limitation of [action] actions and levies).
11 [of the act of April 6, 1953 (P.L.3, No.1), known as the
12 "Uniform Commercial Code."]
13 Section 6. Conforming amendment to Title 75.--Section
14 1132(a) of Title 75 is amended to read:
15 § 1132. Perfection of security interest.
16 (a) Validity of unperfected interest.--Unless perfected as
17 provided in this subchapter or excepted by section 1131
18 (relating to applicability of subchapter), a security interest
19 in a vehicle of a type for which a certificate of title is
20 required is not valid against any person as to whose rights an
21 unperfected security interest is subordinate under the
22 provisions of [the Pennsylvania Uniform Commercial Code] Title
23 13 (relating to commercial code).
24 * * *
25 Section 7. Legislative intent.--In enacting this act, it is
26 the intent of the General Assembly to transfer the former
27 provisions of the act of April 6, 1953 (P.L.3, No.1), known as
28 the "Uniform Commercial Code," reenacted, amended and revised
29 October 2, 1959 (P.L.1023, No.426), to Title 13 of the
30 Pennsylvania Consolidated Statutes (relating to commercial code)
19790S0372B0376 - 339 -
1 without effecting a change in substantive law and the act shall
2 be interpreted and construed to effectuate this intent.
3 Section 8. Repeal.--The act of April 6, 1953 (P.L.3, No.1),
4 known as the "Uniform Commercial Code," reenacted, amended and
5 revised October 2, 1959 (P.L.1023, No.426), is repealed.
6 Section 9. Effective date.--This act shall take effect at
7 12:01 a.m. on the first day of either January or July, whichever
8 month first occurs not less than 30 days from the date of final
9 enactment of this act.
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